1. The document discusses current liabilities and contingencies from an accounting textbook chapter. It defines current liabilities and lists common types like accounts payable, notes payable, and current maturities of long-term debt.
2. One learning objective is to explain the classification of short-term debt expected to be refinanced. This debt is excluded from current liabilities if management intends to refinance and has the ability to, such as securing a financing agreement.
3. Employee-related liabilities are identified as a type of current liability. The document provides examples and journal entries related to classifying various debt obligations.
The document provides an overview of the development of accounting principles and professional practice. It discusses how the environment of accounting has evolved over time to meet changing demands and influences. Three key influences are: 1) recognizing scarce resources, 2) current concepts of property rights and equity, and 3) measuring information for absentee investors. The document also describes the objectives of financial reporting, key qualitative characteristics of accounting information, elements of financial statements, and basic principles of accounting including measurement, revenue/expense recognition, and full disclosure.
The document discusses the statement of financial position, statement of changes in equity, and statement of cash flows. It covers the major classifications of the statement of financial position including current and non-current assets such as cash, receivables, inventories, long-term investments, property, plant and equipment, and intangible assets. The learning objectives are to explain the uses and limitations of the statement of financial position, identify the classifications, and prepare basic statements of changes in equity and cash flows.
IAS 41 Agriculture provides guidance on accounting for biological assets and agricultural produce. It requires that biological assets and agricultural produce be measured at fair value less costs to sell, with changes in fair value recognized in profit or loss. If fair value cannot be reliably measured, biological assets are measured at cost less depreciation and impairment. Extensive disclosures are required, including reconciliation of changes in biological assets, descriptions of groups of biological assets, and information on government grants.
This document contains questions and exercises related to Chapter 9 of Intermediate Accounting, which covers additional inventory valuation issues such as lower-of-cost-or-market, net realizable value, relative sales value, purchase commitments, gross profit method, retail inventory method, and LIFO retail methods. The questions are either true-false, multiple choice, computational, or problems and are aimed at testing the reader's understanding of inventory accounting concepts and ability to perform related calculations.
This document provides an overview of IAS 10, which addresses the accounting for events after the reporting period. It defines adjusting and non-adjusting events and how they are treated. Adjusting events provide evidence of conditions that existed at the reporting date and require adjustment to amounts recognized. Non-adjusting material events after the reporting period require disclosure only. The standard also addresses dividends declared after the period and the required disclosures regarding the date of authorization for issue and nature and estimate of financial effects of subsequent events.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
This document discusses financial forecasting and related concepts. It covers:
1. Financial planning involves projecting profit/loss, balance sheets, and evaluating current/future financial conditions and funding requirements.
2. Key aspects of financial planning include evaluating current conditions, analyzing growth options, projecting future performance, and choosing financing options.
3. Financial forecasting models help establish relationships between variables to facilitate the planning process. Inputs, models, and outputs are key components.
4. Common forecasting techniques include pro forma financial statements, cash budgets, sales budgets, and production budgets. Percent of sales and budgeted expense methods are used to project pro forma statements.
This document provides an overview of IFRS 11 - Joint Arrangements and Associates. It defines joint arrangements as arrangements where two or more parties have joint control based on a contractual agreement. Joint arrangements are classified as either a joint operation or a joint venture depending on the parties' rights and obligations. For a joint operation, parties account for their share of assets, liabilities, revenue and expenses. For a joint venture, parties account for their interest as an investment using the equity method. Examples of each type of arrangement are also provided.
The document provides an overview of the development of accounting principles and professional practice. It discusses how the environment of accounting has evolved over time to meet changing demands and influences. Three key influences are: 1) recognizing scarce resources, 2) current concepts of property rights and equity, and 3) measuring information for absentee investors. The document also describes the objectives of financial reporting, key qualitative characteristics of accounting information, elements of financial statements, and basic principles of accounting including measurement, revenue/expense recognition, and full disclosure.
The document discusses the statement of financial position, statement of changes in equity, and statement of cash flows. It covers the major classifications of the statement of financial position including current and non-current assets such as cash, receivables, inventories, long-term investments, property, plant and equipment, and intangible assets. The learning objectives are to explain the uses and limitations of the statement of financial position, identify the classifications, and prepare basic statements of changes in equity and cash flows.
IAS 41 Agriculture provides guidance on accounting for biological assets and agricultural produce. It requires that biological assets and agricultural produce be measured at fair value less costs to sell, with changes in fair value recognized in profit or loss. If fair value cannot be reliably measured, biological assets are measured at cost less depreciation and impairment. Extensive disclosures are required, including reconciliation of changes in biological assets, descriptions of groups of biological assets, and information on government grants.
This document contains questions and exercises related to Chapter 9 of Intermediate Accounting, which covers additional inventory valuation issues such as lower-of-cost-or-market, net realizable value, relative sales value, purchase commitments, gross profit method, retail inventory method, and LIFO retail methods. The questions are either true-false, multiple choice, computational, or problems and are aimed at testing the reader's understanding of inventory accounting concepts and ability to perform related calculations.
This document provides an overview of IAS 10, which addresses the accounting for events after the reporting period. It defines adjusting and non-adjusting events and how they are treated. Adjusting events provide evidence of conditions that existed at the reporting date and require adjustment to amounts recognized. Non-adjusting material events after the reporting period require disclosure only. The standard also addresses dividends declared after the period and the required disclosures regarding the date of authorization for issue and nature and estimate of financial effects of subsequent events.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
This document discusses financial forecasting and related concepts. It covers:
1. Financial planning involves projecting profit/loss, balance sheets, and evaluating current/future financial conditions and funding requirements.
2. Key aspects of financial planning include evaluating current conditions, analyzing growth options, projecting future performance, and choosing financing options.
3. Financial forecasting models help establish relationships between variables to facilitate the planning process. Inputs, models, and outputs are key components.
4. Common forecasting techniques include pro forma financial statements, cash budgets, sales budgets, and production budgets. Percent of sales and budgeted expense methods are used to project pro forma statements.
This document provides an overview of IFRS 11 - Joint Arrangements and Associates. It defines joint arrangements as arrangements where two or more parties have joint control based on a contractual agreement. Joint arrangements are classified as either a joint operation or a joint venture depending on the parties' rights and obligations. For a joint operation, parties account for their share of assets, liabilities, revenue and expenses. For a joint venture, parties account for their interest as an investment using the equity method. Examples of each type of arrangement are also provided.
This chapter discusses inventory valuation and classification. It covers the following key points:
1. There are two main types of businesses - merchandising and manufacturing companies. Merchandising companies have one inventory account while manufacturing companies have multiple inventory accounts for raw materials, work in process, and finished goods.
2. There are two main inventory systems - perpetual and periodic. The perpetual system continuously updates inventory balances while the periodic system relies on a physical count at the end of the period.
3. Inventory includes goods owned by the company as well as some goods on consignment or sold with a right of return. Inventory errors can misstate financial statements in the current or subsequent periods depending on the type of
International Accounting Standard (IAS-16) Property, Plant & EquipmentMoeez Hassan
Property Plant & Equipment are tangible assets held for use in production or supply of goods and services for more than one period. The document discusses the initial recognition and measurement of PPE, depreciation methods, revaluation, impairment, and disclosure requirements under IAS 16. Key points include how to determine the cost of PPE, calculate depreciation using methods like straight-line and reducing balance, assess impairment, account for revaluations, and financial statement disclosure requirements.
- The document provides guidance for auditors on applying the concept of materiality in planning and performing an audit of financial statements. It discusses determining materiality for the financial statements as a whole and for particular classes of transactions, account balances, or disclosures.
- The document emphasizes that materiality is a matter of professional judgment and is affected by factors like the auditor's perception of user needs, the applicable financial reporting framework, the size or nature of misstatements, and the circumstances in which they occur.
- The auditor is instructed to determine performance materiality at less than the materiality level to reduce the risk that uncorrected misstatements exceed materiality. Materiality levels may need revision as the audit progresses based on new
This document summarizes the key aspects of IAS 23 Borrowing Costs. It defines borrowing costs and qualifying assets. For qualifying assets, borrowing costs directly attributable to the acquisition or construction must be capitalized as part of the asset cost, while other borrowing costs are expensed. Capitalization begins when expenditures are incurred, borrowing costs are incurred, and activities necessary for intended use/sale begin, and ceases when activities are substantially complete. An entity must disclose the amount of borrowing costs capitalized and capitalization rate used.
This document provides an overview of the content covered by IAS 37 relating to provisions, contingent liabilities, and contingent assets. It discusses key topics such as the definition of provisions and their recognition criteria, measurement of provisions including discounting, changes in provisions, and specific types of provisions for onerous contracts and restructuring. Contingent liabilities and contingent assets are also defined along with their accounting treatment and disclosure requirements.
The document discusses IFRS 9, which provides guidance on accounting for financial instruments. Specifically, it covers:
- The scope of financial instruments that fall under IFRS 9.
- Classification and measurement of financial assets and liabilities, including categorizing them as amortized cost, fair value through other comprehensive income, or fair value through profit or loss based on contractual cash flow characteristics and business models.
- Initial recognition and measurement of financial instruments at either fair value or transaction price depending on certain conditions.
In 3 sentences it summarizes key aspects of IFRS 9 related to classification, measurement, and initial recognition of financial instruments.
This document discusses current liabilities, provisions, and contingencies. It begins by outlining the learning objectives, which are to describe various types of current liabilities, explain classification issues related to short-term debt expected to be refinanced, identify types of employee-related liabilities, explain accounting for provisions, and identify criteria for contingent liabilities and assets. It then defines key terms like liability, current liability, and contingencies. Specific types of current liabilities are explained, such as accounts payable, notes payable, current maturities of long-term debt, and unearned revenue. The accounting treatment and examples of these items are provided.
IAS 41 establishes standards for accounting for biological assets and agricultural produce. It requires biological assets to be measured at fair value less costs to sell, with changes in fair value recognized in profit or loss. Agricultural produce is measured at fair value less costs to sell at harvest. IAS 41 provides definitions for key terms and addresses initial recognition, measurement, presentation, and disclosure requirements for biological assets and agricultural produce.
This document discusses current liabilities and contingencies. It begins by defining a liability and current liability. Typical current liabilities include accounts payable, notes payable, current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and deposits, unearned revenues, sales taxes payable, and income taxes payable. It also identifies types of employee-related liabilities such as payroll deductions, compensated absences, and bonuses. Additionally, the document explains the classification of short-term debt expected to be refinanced and identifies types of gain and loss contingencies. It concludes by indicating how to present and analyze liabilities and contingencies.
- IAS 2 Inventories prescribes the accounting treatment for inventories and provides guidance on determining inventory costs and recognizing them as expenses. It applies to all inventories except work-in-progress for construction contracts and biological assets related to agricultural activity.
- Inventories must be measured at the lower of cost and net realizable value. Cost includes costs of purchase, costs of conversion, and other costs to bring inventories to their present location and condition. Net realizable value is the estimated selling price less costs to complete and sell.
- When inventories are sold, their carrying amount must be recognized as an expense. Write-downs to net realizable value and inventory losses must also be recognized as expenses.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
A Filipino citizen residing in Canada donated property worth 375,000 CAD to relatives in December 2010, with tax deductions of 68,000 CAD including 4,500 in donor's tax, resulting in a net gift of 245,000 CAD.
Calonzo, a widower from Lucena City, Philippines, made several donations in June and July, including property worth 125,000 to his sister and 300,000 to the National Library. For his July donations including 160,000 cash to UP, his donor's tax due was calculated to be 11,300 pesos.
Mr. and Mrs. Pano donated properties worth a total of 800,000 pesos in April and 175,000 pesos in
- Fund accounting is a system used by non-governmental organizations (NGOs) to record and report finances received from various sources under different terms and conditions.
- While not required for general financial statements, fund accounting promotes accountability, transparency, and monitoring of how NGOs use funds received for specific purposes.
- Fund accounting involves reporting financial information in a matrix to show the relationship between revenues, expenses, and fund balances across different funding sources, programs, areas of operation, or other dimensions.
The document provides an overview of auditing concepts including the scope and objectives of an audit, financial statement assertions, audit evidence, materiality, audit risk, audit opinions, and standards. It discusses key concepts such as the purpose of an audit being to obtain reasonable assurance about whether financial statements are free of material misstatement, and defines the different types of audit opinions that may be issued. The document also outlines the general principles of an audit, including complying with ethical standards and audit standards, and maintaining an attitude of professional skepticism.
The document provides an overview of International Accounting Standards (IAS) 37, 17, and 19 regarding accounting for liabilities.
IAS 37 covers provisions, contingent liabilities, and contingent assets. It requires provisions to be measured at management's best estimate of the amount required to settle the obligation. IAS 17 distinguishes between finance and operating leases, with different accounting treatments. Finance leases require recognition of an asset and liability, while operating leases do not. IAS 19 addresses accounting for short-term employee benefits, post-employment benefits, other long-term benefits, and termination benefits. Short-term benefits are expensed as incurred without discounting, while other categories require recognition of liabilities.
Module 5 - Long-term Construction ContractsMikee Bylss
1) The document defines construction contracts and discusses how to account for revenue and costs over time under long-term construction contracts. It describes the percentage-of-completion and cost-recovery (zero-profit) methods.
2) Under the percentage-of-completion method, revenue and costs are recognized each period based on the percentage of the contract completed. Completion is often measured using the cost-to-cost method.
3) The cost-recovery method only recognizes revenue up to the amount of costs incurred, with any profit recognized only after the project is fully complete.
This document outlines the procedures an auditor takes to complete an audit. It discusses reviewing events after the financial year, ensuring the going concern assumption is appropriate, identifying contingent liabilities, obtaining management representation, performing analytical procedures to review the financial statements, evaluating audit findings, and communicating with the entity. The auditor is responsible for considering subsequent events, accounting for them, and issuing modified reports if necessary. Analytical procedures help form an overall conclusion on the consistency of the financial information.
This document outlines the key points of the Philippine Financial Reporting Framework for Cooperatives. It discusses the requirements for financial statement presentation, accounting treatments for various transactions and balances, and financial statement disclosures. Specifically, it requires cooperatives to prepare statements of financial condition, operations, cash flows, and changes in equity. It also outlines the statutory fund requirements for cooperatives and the allocation of net surplus. The framework takes effect for financial statements ending on or after December 31, 2016.
Intermediate Accounting . CH 13 . by MidoCoolMahmoud Mohamed
The document discusses current liabilities and contingencies. It defines current liabilities as obligations due within one year and lists common types like accounts payable, notes payable, income taxes payable. It also discusses classification of short-term debt expected to be refinanced. Contingencies are defined as uncertain gains or losses, with loss contingencies accrued if probable and reasonably estimable. Common contingencies include litigation, guarantees, and environmental liabilities.
Based on the information provided:
Short-term obligation A should be reported as a current liability at December 31, 2010 because Hendricks does not have an unconditional right to defer settlement for at least 12 months after the reporting date.
Short-term obligation B should be reported as a long-term liability at December 31, 2010 because Hendricks intends to refinance the obligation on a long-term basis and has an unconditional right to defer settlement for at least 12 months after the reporting date.
This chapter discusses inventory valuation and classification. It covers the following key points:
1. There are two main types of businesses - merchandising and manufacturing companies. Merchandising companies have one inventory account while manufacturing companies have multiple inventory accounts for raw materials, work in process, and finished goods.
2. There are two main inventory systems - perpetual and periodic. The perpetual system continuously updates inventory balances while the periodic system relies on a physical count at the end of the period.
3. Inventory includes goods owned by the company as well as some goods on consignment or sold with a right of return. Inventory errors can misstate financial statements in the current or subsequent periods depending on the type of
International Accounting Standard (IAS-16) Property, Plant & EquipmentMoeez Hassan
Property Plant & Equipment are tangible assets held for use in production or supply of goods and services for more than one period. The document discusses the initial recognition and measurement of PPE, depreciation methods, revaluation, impairment, and disclosure requirements under IAS 16. Key points include how to determine the cost of PPE, calculate depreciation using methods like straight-line and reducing balance, assess impairment, account for revaluations, and financial statement disclosure requirements.
- The document provides guidance for auditors on applying the concept of materiality in planning and performing an audit of financial statements. It discusses determining materiality for the financial statements as a whole and for particular classes of transactions, account balances, or disclosures.
- The document emphasizes that materiality is a matter of professional judgment and is affected by factors like the auditor's perception of user needs, the applicable financial reporting framework, the size or nature of misstatements, and the circumstances in which they occur.
- The auditor is instructed to determine performance materiality at less than the materiality level to reduce the risk that uncorrected misstatements exceed materiality. Materiality levels may need revision as the audit progresses based on new
This document summarizes the key aspects of IAS 23 Borrowing Costs. It defines borrowing costs and qualifying assets. For qualifying assets, borrowing costs directly attributable to the acquisition or construction must be capitalized as part of the asset cost, while other borrowing costs are expensed. Capitalization begins when expenditures are incurred, borrowing costs are incurred, and activities necessary for intended use/sale begin, and ceases when activities are substantially complete. An entity must disclose the amount of borrowing costs capitalized and capitalization rate used.
This document provides an overview of the content covered by IAS 37 relating to provisions, contingent liabilities, and contingent assets. It discusses key topics such as the definition of provisions and their recognition criteria, measurement of provisions including discounting, changes in provisions, and specific types of provisions for onerous contracts and restructuring. Contingent liabilities and contingent assets are also defined along with their accounting treatment and disclosure requirements.
The document discusses IFRS 9, which provides guidance on accounting for financial instruments. Specifically, it covers:
- The scope of financial instruments that fall under IFRS 9.
- Classification and measurement of financial assets and liabilities, including categorizing them as amortized cost, fair value through other comprehensive income, or fair value through profit or loss based on contractual cash flow characteristics and business models.
- Initial recognition and measurement of financial instruments at either fair value or transaction price depending on certain conditions.
In 3 sentences it summarizes key aspects of IFRS 9 related to classification, measurement, and initial recognition of financial instruments.
This document discusses current liabilities, provisions, and contingencies. It begins by outlining the learning objectives, which are to describe various types of current liabilities, explain classification issues related to short-term debt expected to be refinanced, identify types of employee-related liabilities, explain accounting for provisions, and identify criteria for contingent liabilities and assets. It then defines key terms like liability, current liability, and contingencies. Specific types of current liabilities are explained, such as accounts payable, notes payable, current maturities of long-term debt, and unearned revenue. The accounting treatment and examples of these items are provided.
IAS 41 establishes standards for accounting for biological assets and agricultural produce. It requires biological assets to be measured at fair value less costs to sell, with changes in fair value recognized in profit or loss. Agricultural produce is measured at fair value less costs to sell at harvest. IAS 41 provides definitions for key terms and addresses initial recognition, measurement, presentation, and disclosure requirements for biological assets and agricultural produce.
This document discusses current liabilities and contingencies. It begins by defining a liability and current liability. Typical current liabilities include accounts payable, notes payable, current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and deposits, unearned revenues, sales taxes payable, and income taxes payable. It also identifies types of employee-related liabilities such as payroll deductions, compensated absences, and bonuses. Additionally, the document explains the classification of short-term debt expected to be refinanced and identifies types of gain and loss contingencies. It concludes by indicating how to present and analyze liabilities and contingencies.
- IAS 2 Inventories prescribes the accounting treatment for inventories and provides guidance on determining inventory costs and recognizing them as expenses. It applies to all inventories except work-in-progress for construction contracts and biological assets related to agricultural activity.
- Inventories must be measured at the lower of cost and net realizable value. Cost includes costs of purchase, costs of conversion, and other costs to bring inventories to their present location and condition. Net realizable value is the estimated selling price less costs to complete and sell.
- When inventories are sold, their carrying amount must be recognized as an expense. Write-downs to net realizable value and inventory losses must also be recognized as expenses.
This document provides an overview of accounting for receivables. It defines different types of receivables like accounts receivable and notes receivable. It explains how companies recognize, value, and dispose of both accounts receivable and notes receivable. Specific topics covered include recognizing revenue on credit sales, estimating and recording allowance for doubtful accounts, accounting for uncollectible accounts, determining maturity dates and interest on notes, and presenting receivables on financial statements. The document aims to help students understand the key accounting concepts and entries related to receivables.
A Filipino citizen residing in Canada donated property worth 375,000 CAD to relatives in December 2010, with tax deductions of 68,000 CAD including 4,500 in donor's tax, resulting in a net gift of 245,000 CAD.
Calonzo, a widower from Lucena City, Philippines, made several donations in June and July, including property worth 125,000 to his sister and 300,000 to the National Library. For his July donations including 160,000 cash to UP, his donor's tax due was calculated to be 11,300 pesos.
Mr. and Mrs. Pano donated properties worth a total of 800,000 pesos in April and 175,000 pesos in
- Fund accounting is a system used by non-governmental organizations (NGOs) to record and report finances received from various sources under different terms and conditions.
- While not required for general financial statements, fund accounting promotes accountability, transparency, and monitoring of how NGOs use funds received for specific purposes.
- Fund accounting involves reporting financial information in a matrix to show the relationship between revenues, expenses, and fund balances across different funding sources, programs, areas of operation, or other dimensions.
The document provides an overview of auditing concepts including the scope and objectives of an audit, financial statement assertions, audit evidence, materiality, audit risk, audit opinions, and standards. It discusses key concepts such as the purpose of an audit being to obtain reasonable assurance about whether financial statements are free of material misstatement, and defines the different types of audit opinions that may be issued. The document also outlines the general principles of an audit, including complying with ethical standards and audit standards, and maintaining an attitude of professional skepticism.
The document provides an overview of International Accounting Standards (IAS) 37, 17, and 19 regarding accounting for liabilities.
IAS 37 covers provisions, contingent liabilities, and contingent assets. It requires provisions to be measured at management's best estimate of the amount required to settle the obligation. IAS 17 distinguishes between finance and operating leases, with different accounting treatments. Finance leases require recognition of an asset and liability, while operating leases do not. IAS 19 addresses accounting for short-term employee benefits, post-employment benefits, other long-term benefits, and termination benefits. Short-term benefits are expensed as incurred without discounting, while other categories require recognition of liabilities.
Module 5 - Long-term Construction ContractsMikee Bylss
1) The document defines construction contracts and discusses how to account for revenue and costs over time under long-term construction contracts. It describes the percentage-of-completion and cost-recovery (zero-profit) methods.
2) Under the percentage-of-completion method, revenue and costs are recognized each period based on the percentage of the contract completed. Completion is often measured using the cost-to-cost method.
3) The cost-recovery method only recognizes revenue up to the amount of costs incurred, with any profit recognized only after the project is fully complete.
This document outlines the procedures an auditor takes to complete an audit. It discusses reviewing events after the financial year, ensuring the going concern assumption is appropriate, identifying contingent liabilities, obtaining management representation, performing analytical procedures to review the financial statements, evaluating audit findings, and communicating with the entity. The auditor is responsible for considering subsequent events, accounting for them, and issuing modified reports if necessary. Analytical procedures help form an overall conclusion on the consistency of the financial information.
This document outlines the key points of the Philippine Financial Reporting Framework for Cooperatives. It discusses the requirements for financial statement presentation, accounting treatments for various transactions and balances, and financial statement disclosures. Specifically, it requires cooperatives to prepare statements of financial condition, operations, cash flows, and changes in equity. It also outlines the statutory fund requirements for cooperatives and the allocation of net surplus. The framework takes effect for financial statements ending on or after December 31, 2016.
Intermediate Accounting . CH 13 . by MidoCoolMahmoud Mohamed
The document discusses current liabilities and contingencies. It defines current liabilities as obligations due within one year and lists common types like accounts payable, notes payable, income taxes payable. It also discusses classification of short-term debt expected to be refinanced. Contingencies are defined as uncertain gains or losses, with loss contingencies accrued if probable and reasonably estimable. Common contingencies include litigation, guarantees, and environmental liabilities.
Based on the information provided:
Short-term obligation A should be reported as a current liability at December 31, 2010 because Hendricks does not have an unconditional right to defer settlement for at least 12 months after the reporting date.
Short-term obligation B should be reported as a long-term liability at December 31, 2010 because Hendricks intends to refinance the obligation on a long-term basis and has an unconditional right to defer settlement for at least 12 months after the reporting date.
FA II CH 3 current liab, contan, prov.pptxbikila hussen
This document provides an overview and learning objectives for a chapter on current liabilities, provisions, and contingencies. The key topics covered include:
1. Describing the nature, types, and valuation of current liabilities such as accounts payable, notes payable, income taxes payable, and employee-related liabilities.
2. Explaining the classification of short-term debt expected to be refinanced and identifying whether it should be classified as a current or non-current liability.
3. Explaining the accounting for provisions, contingent liabilities, and contingent assets.
The document outlines the chapter's learning objectives and indicates students should be able to explain, identify, and indicate accounting
FA II CH 3 current liab, contan, prov.pptxbikila hussen
This document provides an overview and learning objectives for a chapter on current liabilities, provisions, and contingencies. It defines a current liability and lists common types, including accounts payable, notes payable, current maturities of long-term debt, and dividends payable. It also discusses the accounting for short-term obligations expected to be refinanced, and how they are classified on the balance sheet. Examples are provided for accounting entries related to notes payable.
The document provides an overview of current liabilities including their nature, valuation, and reporting. It defines current liabilities as obligations due within one year or the normal operating cycle. Typical current liabilities are discussed such as accounts payable, notes payable, current debt maturities, dividends payable, and unearned revenue. Examples are provided of accounting for notes payable, both interest-bearing and zero-interest-bearing. The document also discusses refinancing short-term debt and distinguishing between current and non-current liabilities.
Current Liabilities, Provisions, and Contingenciesreskino1
Current Liabilities,
Provisions, and Contingencies
After studying this chapter, you should be able to:
1. Describe the nature, valuation, and reporting of current liabilities.
2. Explain the accounting for different types of provisions.
3. Explain the accounting for loss and gain contingencies.
4. Indicate how to present and analyze liability-related information
This document provides an overview of current liabilities, provisions, and contingencies. It begins with learning objectives, which are to describe current liabilities, explain accounting for provisions and contingencies, and analyze liability information. Current liabilities include accounts payable, notes payable, income taxes payable, and employee-related liabilities. Provisions include warranty obligations and onerous contracts. Contingencies are potential liabilities from past events whose existence will be confirmed only by uncertain future events or present obligations where payment is not probable.
This document provides an overview of accounting for liabilities. It begins by listing 7 learning objectives for the chapter, which cover current liabilities, notes payable, other current liabilities, bonds, and financial statement presentation of liabilities. The document then defines current liabilities and notes payable, providing examples of accounting entries. It describes other current liabilities such as accounts payable, unearned revenue, and payroll and taxes. Finally, it discusses types of bonds, how they are issued, and how market value is determined.
13-‹#›PREVIEW OF CHAPTERIntermediate AccountingIFR.docxmoggdede
13-‹#›
PREVIEW OF CHAPTER
Intermediate Accounting
IFRS 2nd Edition
Kieso, Weygandt, and Warfield
13
13-‹#›
Explain the accounting for different types of provisions.
Identify the criteria used to account for and disclose contingent liabilities and assets.
Indicate how to present and analyze liability-related information.
After studying this chapter, you should be able to:
Current Liabilities, Provisions, and Contingencies
13
LEARNING OBJECTIVES
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.
13-‹#›
Three essential characteristics:
Present obligation.
Arises from past events.
Results in an outflow of resources (cash, goods, services).
CURRENT LIABILITIES
LO 1
13-‹#›
A current liability is reported if one of two conditions exists:
Liability is expected to be settled within its normal operating cycle; or
Liability is expected to be settled within 12 months after the reporting date.
The operating cycle is the period of time elapsing between the acquisition of goods and services and the final cash realization resulting from sales and subsequent collections.
CURRENT LIABILITIES
LO 1
13-‹#›
Typical Current Liabilities:
Accounts payable.
Notes payable.
Current maturities of long-term debt.
Short-term obligations expected to be refinanced.
Dividends payable.
Customer advances and deposits.
Unearned revenues.
Sales and value-added taxes payable.
Income taxes payable.
Employee-related liabilities.
CURRENT LIABILITIES
LO 1
13-‹#›
Accounts Payable (trade accounts payable)
Balances owed to others for goods, supplies, or services purchased on open account.
Time lag between the receipt of services or acquisition of title to assets and the payment for them.
Terms of the sale (e.g., 2/10, n/30 or 1/10, E.O.M.) usually state period of extended credit, commonly 30 to 60 days.
CURRENT LIABILITIES
LO 1
13-‹#›
Notes Payable
Written promises to pay a certain sum of money on a specified future date.
Arise from purchases, financing, or other transactions.
Notes classified as short-term or long-term.
Notes may be interest-bearing or zero-interest-bearing.
CURRENT LIABILITIES
LO 1
13-‹#›
Illustration: Castle National Bank agrees to lend €100,000 on March 1, 2015, to Landscape Co. if Landscape signs a €100,000, 6 percent, four-month note. Landscape records the cash received on March 1 as follows:
Cash 100,000
Notes Payable 100,000
Interest-Bearing Note Issued
CURRENT LIABILITIES
LO 1
13-‹#›
If Landscape prepares financial statements semiannually, it makes the following adjusting entry to recognize interest expense and interest payable at June 30, 2015:
Interest Expense 2,000
Interest Payable 2,000
(€100,000 x 6% x 4/12) = €2,000
Interest calculation =
Interest-Bearing Note Issued
LO 1
13-‹#›
At maturity (July 1, 2016), Landscape records payment of the note and accrued intere ...
FA II - Chapter 1, Current Liabilities.pptxKalkaye
This document discusses current liabilities, which are obligations that are expected to be paid within one year or the normal operating cycle. Current liabilities include accounts payable, notes payable, interest payable, income taxes payable, and other obligations that will be settled in the near future using current assets. Short-term debt can be excluded from current liabilities if the company has both the intent and right to refinance the debt for over one year.
The document discusses accounting for current and long-term liabilities. It defines a current liability and identifies major types like accounts payable, unearned revenue, and payroll taxes payable. It describes accounting for notes payable, bonds, and bond issuance at face value, discount or premium. It also addresses accounting entries for bond interest expense and redemption, and financial statement presentation of liabilities.
1. The document provides an overview of Chapter 10 on liabilities from an accounting textbook. It covers topics such as current liabilities, notes payable, bonds, and non-current liabilities.
2. The learning objectives are explained through examples, illustrations, and questions. Key aspects of notes payable, sales taxes payable, unearned revenues, and bonds are defined.
3. Methods for presenting and analyzing current and non-current liabilities on financial statements are also reviewed, including calculations of working capital and current ratios.
444ChapterLiabilitiesAfter studying this chapter, yo.docxgilbertkpeters11344
444
Chapter
Liabilities
After studying this chapter, you should be
able to:
1 Explain a current liability, and identify
the major types of current liabilities.
2 Describe the accounting for notes
payable.
3 Explain the accounting for other current
liabilities.
4 Explain why bonds are issued, and
identify the types of bonds.
5 Prepare the entries for the issuance of
bonds and interest expense.
6 Describe the entries when bonds are
redeemed or converted.
7 Describe the accounting for long-term
notes payable.
8 Identify the methods for the presentation
and analysis of long-term liabilities.
S T U D Y O B J E C T I V E S
Feature Story
The Navigator✓
10
FINANCING HIS DREAMS
What would you do if you had a great idea for a new product, but couldn’t
come up with the cash to get the business off the ground? Small businesses
often cannot attract investors. Nor can they obtain traditional debt financing
through bank loans or bond issuances. Instead, they often resort to unusual,
and costly, forms of nontraditional financing.
Such was the case for Wilbert Murdock. Murdock grew up in a New York
housing project, and always had great ambitions. This ambitious spirit led him
into some business ventures that failed: a medical diagnostic tool, a device to
eliminate carpal-tunnel syndrome, custom-designed sneakers, and a device to
keep people from falling asleep while driving.
Scan Study Objectives ■
Read Feature Story ■
Read Preview ■
Read text and answer
p. 453 ■ p. 458 ■ p. 461 ■ p. 463 ■
p. 465 ■
Work Comprehensive p. 469 ■
Review Summary of Study Objectives ■
Answer Self-Study Questions ■
Complete Assignments ■
The Navigator✓
Do it!
Do it!
JWCL165_c10_444-505.qxd 8/12/09 7:24 AM Page 444
445
Another idea was computer-
ized golf clubs that analyze a
golfer’s swing and provide
immediate feedback. Murdock
saw great potential in the
idea: Many golfers are willing
to shell out considerable sums
of money for devices that
might improve their game.
But Murdock had no cash to
develop his product, and
banks and other lenders had
shied away. Rather than give
up, Murdock resorted to credit cards—in a big way. He quickly owed $25,000
to credit card companies.
While funding a business with credit cards might sound unusual, it isn’t. A
recent study found that one-third of businesses with fewer than 20 employ-
ees financed at least part of their operations with credit cards. As Murdock
explained, credit cards are an appealing way to finance a start-up because
“credit-card companies don’t care how the money is spent.” However, they
do care how they are paid. And so Murdock faced high interest charges and
a barrage of credit card collection letters.
Murdock’s debt forced him to sacrifice nearly everything in order to keep
his business afloat. His car stopped running, he barely had enough money
to buy food, and he lived and worked out of a dimly lit apartment in his
mother’s basement. Through it all he tried to maintain a po.
This document discusses accounting for current liabilities and payroll. It begins by defining current liabilities as debts that must be paid within one year or the operating cycle, whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenue, and accrued expenses. The document then explains how to account for specific types of current liabilities like notes payable, sales taxes payable, and unearned revenue. It discusses reporting and analyzing current liabilities, including contingent liabilities. Finally, the document covers payroll accounting, including computing gross earnings, payroll deductions, and net pay, and recording payroll journal entries.
This document discusses accounting for current liabilities and payroll. It begins by defining current liabilities as debts that must be paid within one year or the operating cycle, whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenue, and accrued expenses. The document then explains how to account for specific types of current liabilities like notes payable, sales taxes payable, and unearned revenue. It discusses reporting and analyzing current liabilities, including contingent liabilities. Finally, the document covers payroll accounting, including computing gross earnings, payroll deductions, and net pay, and recording payroll journal entries.
This document discusses accounting for long-term liabilities such as bonds and long-term notes payable. It describes the major characteristics of bonds including types of bonds and how they are issued. It explains how to account for bond transactions such as issuing bonds at face value, a discount or premium. It also discusses accounting for long-term notes payable, including recording mortgage notes payable and their payments. Finally, it discusses presentation of long-term liabilities on the balance sheet.
This document discusses long-term liabilities such as bonds and long-term notes payable. It describes the major characteristics of bonds, including types of bonds and how they are issued. It explains how to account for bond transactions such as issuing bonds at face value, a discount, or premium. It also discusses accounting for long-term notes payable, including recording mortgage notes payable. Finally, it discusses presentation of long-term liabilities on the balance sheet.
This document provides an overview of accounting for liabilities. It begins by defining current liabilities and identifying major types like accounts payable, notes payable, unearned revenue, and accrued expenses. It then discusses accounting for notes payable, including example journal entries. The document also explains accounting for other current liabilities like sales tax payable and unearned revenue. It concludes by covering non-current liabilities such as bonds, including why companies issue bonds, types of bonds, accounting for bond issuances and redemptions, and accounting for long-term notes payable.
This document provides an overview and summary of Chapter 9 from Mishkin's textbook on money, banking, and financial markets. It discusses the key topics covered in the chapter, including:
1) How a bank's balance sheet lists sources of funds (liabilities) and uses of funds (assets).
2) How banks operate by obtaining deposits and using them to make loans, illustrated using T-accounts.
3) The four principles of bank management: liquidity management, asset management, liability management, and capital adequacy management.
Here are the steps to solve this payroll problem:
(a) Gross earnings: $40,000
FICA taxes (7.65% of $40,000): 0.0765 * $40,000 = $3,060
Federal income tax withheld: $9,000
State income tax withheld: $1,000
Net pay = Gross earnings - FICA taxes - Federal taxes - State taxes
= $40,000 - $3,060 - $9,000 - $1,000 = $26,940
(b) Salaries and Wages Expense 40,000
FICA Taxes Payable 3,060
Federal Income Taxes Payable 9,000
Similar to IFA II CH 1 Current Liab, Prov and Cont.ppt (20)
OM CH 04QUALITY MANAGEMENT AND CONTROL (2).pptEbsaAbdi
This document discusses capacity planning and aggregate production planning. It describes aggregate planning as intermediate-range planning that typically covers 2 to 18 months and aims to effectively utilize resources to match expected demand. The document outlines various aggregate planning strategies such as altering demand or capacity to match each other. It also discusses techniques for aggregate planning like graphical and mathematical models. Finally, it covers operations scheduling and sequencing, including priority rules.
This document outlines Ethiopia's income tax schedules and structures. It discusses employment income tax (Schedule A), rental income tax (Schedule B), and business income tax (Schedule C). For employment income, tax rates range from 10-35% and the first Birr 600 is exempt. For rental income, tax rates range from 0-35%. Business income is taxed based on the business's annual turnover and categorization as A, B, or C. Allowable deductions and non-allowable expenses are defined for determining taxable business income.
This document discusses linear programming models and their formulation, solution, and interpretation. It provides examples of how to formulate a linear programming problem to maximize profit for a furniture company given constraints on resources. The specific steps are: (1) define decision variables and objective function, (2) write constraints as linear inequalities, and (3) find the optimal solution that satisfies all constraints and maximizes the objective function. Graphical and Excel Solver methods are presented to solve linear programming problems.
The document discusses cost-volume-profit (CVP) analysis, which examines how total revenues, costs, and operating income are affected by changes in output levels, prices, variable costs, or fixed costs. It covers CVP concepts such as contribution margin, breakeven point, target operating income, sensitivity analysis, and decision making under uncertainty. The purpose of CVP analysis is to help managers understand how costs and revenues behave at different production volumes and prices.
chapter three interest rates in the financial system.pptxEbsaAbdi
There are two main economic theories that explain how interest rates are determined:
1) Loanable funds theory - Interest rates are determined by the supply and demand of loanable funds in the credit market. Demand comes from entities seeking to borrow, while supply comes from those willing to lend funds.
2) Liquidity preference theory - Interest rates are set by the demand and supply of money balances. Individuals may prefer to hold their wealth in liquid money form rather than invest due to uncertainty, affecting interest rates.
Additionally, the structure of interest rates varies based on factors like maturity, risk, and transaction costs associated with different financial instruments. Riskier loans command higher interest rates as compensation for default risk.
The document discusses various theories of interest rate determination. It begins by defining interest rates and how they are expressed. It then outlines four main theories: the classical theory which argues rates are determined by supply and demand of savings and investment; liquidity preference theory which adds demand for money holdings; loanable funds theory considering demand and supply of credit; and rational expectations theory where rates reflect expectations based on available information. The document also discusses how interest rates form a structure, with risk-free rates as the base and risk premiums added depending on an issuer's creditworthiness as assessed by rating agencies.
This chapter discusses the principles of full disclosure in financial reporting. It covers the use of notes to provide additional information and explain items in the financial statements. There are also requirements for disclosing information about a company's different business segments. The chapter addresses interim financial reporting and the problems that can arise. It describes the components of the auditor's report and management's responsibilities regarding financial reporting. Disclosure requirements for related party transactions, post-balance sheet events, and the use of the internet for financial reporting are also outlined.
This document discusses financial analysis and planning. It provides information on sources of financial information including the balance sheet, income statement, and cash flow statement. It then discusses the need for and methods of financial analysis including ratio analysis. Ratio analysis involves calculating relationships between line items on financial statements to assess a firm's financial condition and performance. Different types of financial ratios are covered including liquidity ratios, activity ratios, leverage ratios, profitability ratios, and market value ratios. Liquidity and activity ratios are specifically discussed using an example company to demonstrate how they are calculated and interpreted.
This document provides an overview of financial statement analysis. It discusses the key types of financial statements - the balance sheet, income statement, statement of cash flows, and statement of owner's equity. It then covers approaches to financial analysis, including horizontal analysis, vertical analysis, common-size statements, and financial ratio analysis. Specific accounting ratios are defined that measure profitability, liquidity, solvency, activity, and investment valuation. The document aims to teach students how to interpret and compare financial performance across companies and time periods using these analytical techniques.
This chapter discusses accounting for cash and receivables. It defines cash and identifies items considered cash, how cash is reported, and issues around cash management and control. Receivables are defined as amounts due from customers from credit sales or loans made to customers. The chapter addresses recognition, valuation, and disposition of accounts and notes receivable, including methods for estimating uncollectible receivables. It also discusses accounting treatment for transfers of receivables as either secured borrowings or sales.
This presentation includes basic of PCOS their pathology and treatment and also Ayurveda correlation of PCOS and Ayurvedic line of treatment mentioned in classics.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
Main Java[All of the Base Concepts}.docxadhitya5119
This is part 1 of my Java Learning Journey. This Contains Custom methods, classes, constructors, packages, multithreading , try- catch block, finally block and more.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UPRAHUL
This Dissertation explores the particular circumstances of Mirzapur, a region located in the
core of India. Mirzapur, with its varied terrains and abundant biodiversity, offers an optimal
environment for investigating the changes in vegetation cover dynamics. Our study utilizes
advanced technologies such as GIS (Geographic Information Systems) and Remote sensing to
analyze the transformations that have taken place over the course of a decade.
The complex relationship between human activities and the environment has been the focus
of extensive research and worry. As the global community grapples with swift urbanization,
population expansion, and economic progress, the effects on natural ecosystems are becoming
more evident. A crucial element of this impact is the alteration of vegetation cover, which plays a
significant role in maintaining the ecological equilibrium of our planet.Land serves as the foundation for all human activities and provides the necessary materials for
these activities. As the most crucial natural resource, its utilization by humans results in different
'Land uses,' which are determined by both human activities and the physical characteristics of the
land.
The utilization of land is impacted by human needs and environmental factors. In countries
like India, rapid population growth and the emphasis on extensive resource exploitation can lead
to significant land degradation, adversely affecting the region's land cover.
Therefore, human intervention has significantly influenced land use patterns over many
centuries, evolving its structure over time and space. In the present era, these changes have
accelerated due to factors such as agriculture and urbanization. Information regarding land use and
cover is essential for various planning and management tasks related to the Earth's surface,
providing crucial environmental data for scientific, resource management, policy purposes, and
diverse human activities.
Accurate understanding of land use and cover is imperative for the development planning
of any area. Consequently, a wide range of professionals, including earth system scientists, land
and water managers, and urban planners, are interested in obtaining data on land use and cover
changes, conversion trends, and other related patterns. The spatial dimensions of land use and
cover support policymakers and scientists in making well-informed decisions, as alterations in
these patterns indicate shifts in economic and social conditions. Monitoring such changes with the
help of Advanced technologies like Remote Sensing and Geographic Information Systems is
crucial for coordinated efforts across different administrative levels. Advanced technologies like
Remote Sensing and Geographic Information Systems
9
Changes in vegetation cover refer to variations in the distribution, composition, and overall
structure of plant communities across different temporal and spatial scales. These changes can
occur natural.
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
Executive Directors Chat Leveraging AI for Diversity, Equity, and InclusionTechSoup
Let’s explore the intersection of technology and equity in the final session of our DEI series. Discover how AI tools, like ChatGPT, can be used to support and enhance your nonprofit's DEI initiatives. Participants will gain insights into practical AI applications and get tips for leveraging technology to advance their DEI goals.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
South African Journal of Science: Writing with integrity workshop (2024)
IFA II CH 1 Current Liab, Prov and Cont.ppt
1. 13-1
Intermediate Financial Reporting II
(AcFn 2082)
Chapter Three: Current Liabilities, Provisions a
nd Contingencies
Instructor: Tesfamlak M. Muné
April, 2019
Injibara University
3. 13-3
4. Identify the criteria used to account for
and disclose gain and loss contingencies.
5. Explain the accounting for different types
of loss contingencies.
6. Indicate how to present and analyze
liabilities and contingencies.
After studying this chapter, you should be able to:
LEARNING OBJECTIVES
1. Describe the nature, type, and valuation of
current liabilities.
2. Explain the classification issues of short-t
erm debt expected to be refinanced.
3. Identify types of employee-related liabilitie
s.
Current Liabilities
and Contingencies
13
4. 13-4
Current Liabilities
“What is a Liability?”
The FASB, defined liabilities as:
“Probable Future Sacrifices of Economic Benefits arising
from present obligations of a particular entity to transfer
assets or provide services to other entities in the future as
a result of past transactions or events.”
LO 1
6. 13-6
Current Liabilities
Recall: Current assets are cash or other assets that
companies reasonably expect to convert into cash, sell, or
consume in operations within a single operating cycle or within
a year.
LO 1 Describe the nature, type, and valuation of current liabilities.
Operating cycle: period of time elapsing between the
acquisition of goods and services and the final cash
realization resulting from sales and subsequent collections.
Current liabilities are “obligations whose liquidation is
reasonably expected to require use of existing resources
properly classified as current assets, or the creation of other
current liabilities.”
8. 13-8
Current Liabilities
Typical Current Liabilities:
Accounts payable.
Notes payable.
Current maturities of long-term
debt.
Short-term obligations expected to
be refinanced.
Dividends payable.
Customer advances and
deposits.
Unearned revenues.
Sales taxes payable.
Income taxes payable.
Employee-related
liabilities.
LO 1 Describe the nature, type, and valuation of current liabilities.
9. 13-9
Balances owed to others for goods, supplies, or services
purchased on open account.
Time lag between the receipt of services or acquisition of
title to assets and the payment for them.
Terms of the sale (e.g., 2/10, n/30 or 1/10, E.O.M.) usually
state period of extended credit, commonly 30 to 60 days.
Accounts Payable (trade accounts payable)
LO 1 Describe the nature, type, and valuation of current liabilities.
Current Liabilities
10. 13-10
Written promises to pay a certain sum of money on a
specified future date.
Arise from purchases, financing, or other transactions.
Classified as short-term or long-term.
May be interest-bearing or zero-interest-bearing.
Notes Payable
LO 1 Describe the nature, type, and valuation of current liabilities.
Current Liabilities
11. 13-11
Illustration: Castle National Bank agrees to lend $100,000 on
March 1, 2014, to Landscape Co. if Landscape signs a $100,000,
6 percent, four-month note. Landscape records the cash received
on March 1 as follows:
Current Liabilities
LO 1 Describe the nature, type, and valuation of current liabilities.
Cash 100,000
Notes Payable 100,000
Interest-Bearing Note Issued
12. 13-12
If Landscape prepares financial statements semiannually, it
makes the following adjusting entry to recognize interest
expense and interest payable at June 30:
Current Liabilities
LO 1 Describe the nature, type, and valuation of current liabilities.
Interest Expense 2,000
Interest Payable 2,000
($100,000 x 6% x 4/12) = $2,000
Interest calculation =
13. 13-13
At maturity (July 1), Landscape records payment of the note and
accrued interest as follows.
Current Liabilities
LO 1 Describe the nature, type, and valuation of current liabilities.
Notes payable 100,000
Interest Payable 2,000
Cash
102,000
14. 13-14
Illustration: On March 1, Landscape issues a $102,000, four-
month, zero-interest-bearing note to Castle National Bank. The
present value of the note is $100,000. Landscape records this
transaction as follows.
Current Liabilities
LO 1 Describe the nature, type, and valuation of current liabilities.
Cash 100,000
Discount on Notes Payable 2,000
Notes Payable
102,000
Zero-Interest-Bearing Note Issued
15. 13-15
Discount on Notes Payable is a contra account to Notes
Payable, and therefore is subtracted from Notes Payable on the
balance sheet.
Current Liabilities
LO 1 Describe the nature, type, and valuation of current liabilities.
Illustration 13-1
Balance Sheet
Presentation of Discount
Discount on notes payable:
Represents the cost of borrowing.
Debited to interest expense over the life of the note.
Represents interest expense chargeable to future periods.
16. 13-16
Illustration: (Accounts and Notes Payable) The following are selected
2014 transactions of Darby Corporation.
LO 1 Describe the nature, type, and valuation of current liabilities.
Sept. 1 - Purchased inventory from Orion Company on account for
$50,000. Darby records purchases gross and uses a periodic inventory
system.
Oct. 1 - Issued a $50,000, 12-month, 8% note to Orion in payment of
account.
Oct. 1 - Borrowed $75,000 from the Shore Bank by signing a 12-month,
zero-interest-bearing $81,000 note.
Prepare journal entries for the selected transactions.
Current Liabilities
17. 13-17
Sept. 1 - Purchased inventory from Orion Company on
account for $50,000. Darby records purchases gross and uses
a periodic inventory system.
LO 1 Describe the nature, type, and valuation of current liabilities.
Sept. 1 Purchases 50,000
Accounts Payable 50,000
Current Liabilities
18. 13-18 LO 1 Describe the nature, type, and valuation of current liabilities.
Oct. 1 Accounts Payable 50,000
Notes Payable 50,000
Interest calculation =
Oct. 1 - Issued a $50,000, 12-month, 8% note to Orion in payment
of account.
Dec. 31 Interest Expense 1,000
Interest Payable 1,000
($50,000 x 8% x 3/12) = $1,000
Current Liabilities
19. 13-19
Dec. 31 Interest Expense 1,500
Discount on Notes Payable 1,500
LO 1 Describe the nature, type, and valuation of current liabilities.
Oct. 1 Cash 75,000
Discount on Notes Payable 6,000
Notes Payable 81,000
($6,000 x 3/12) = $1,500
Interest calculation =
Oct. 1 - Borrowed $75,000 from the Shore Bank by signing a 12-
month, zero-interest-bearing $81,000 note.
Current Liabilities
20. 13-20
Portion of bonds, mortgage notes, and other long-term
indebtedness that matures within the next fiscal year.
Exclude long-term debts maturing currently if they are to be:
Current Maturities of Long-Term Debt
LO 1 Describe the nature, type, and valuation of current liabilities.
1. Retired by assets accumulated that have not been shown as
current assets,
2. Refinanced, or retired from the proceeds of a new debt issue,
or
3. Converted into capital stock.
Current Liabilities
21. 13-21
4. Identify the criteria used to account for
and disclose gain and loss contingencies.
5. Explain the accounting for different types
of loss contingencies.
6. Indicate how to present and analyze
liabilities and contingencies.
After studying this chapter, you should be able to:
LEARNING OBJECTIVES
1. Describe the nature, type, and valuation of
current liabilities.
2. Explain the classification issues of short-t
erm debt expected to be refinanced.
3. Identify types of employee-related liabilitie
s.
Current Liabilities
and Contingencies
13
22. 13-22
Exclude from current liabilities if both of the following
conditions are met:
Short-Term Obligations Expected to Be
Refinanced
1. Must intend to refinance the obligation on a long-term basis.
2. Must demonstrate an ability to refinance:
Actual refinancing.
Enter into a financing agreement.
Current Liabilities
LO 2
23. 13-23
or
Short-Term Obligations Expected to be Refinanced
Management Intends of Refinance
Demonstrates Ability to Refinance
Actual Refinancing after
balance sheet date but
before issue date
Financing Agreement
Noncancellable with Capable
Lender
YES
YES
Classify as
Current
Liability
NO
NO
Exclude Short-Term Obligations from Current
Liabilities and Reclassify as LT Debt
LO 2
Current Liabilities
24. 13-24
Illustration: On December 31, 2014, Alexander Company had
$1,200,000 of short-term debt in the form of notes payable due
February 2, 2015. On January 21, 2015, the company issued 25,000
shares of its common stock for $36 per share, receiving $900,000
proceeds after brokerage fees and other costs of issuance. On
February 2, 2015, 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, 2014, balance sheet is issued on February
23, 2015.
Instructions:
Show how the $1,200,000 of short-term debt should be presented on
the December 31, 2014, balance sheet, including note disclosure
Current Liabilities
LO 2
25. 13-25
Partial Balance Sheet
Current liabilities:
Notes
payable
$300,000
Long-term debt:
Notes payable refinanced 900,000
Total liabilities $1,200,000
Current Liabilities
December 31, 2014
Balance sheet date
Liability of $1,200,000
How to classify?
LO 2
January 21, 2015 February 2, 2015 February 23, 2015
Issued stock
for $900,000
Liability of
$1,200,000
paid off
Financial
statements
issued
26. 13-26
The evaluation of credit quality involves
more than simply assessing a company’s
ability to repay loans. Credit analysts also
evaluate debt management strategies.
Analysts and investors will reward what
they view as prudent management
decisions with lower debt service costs and
a higher stock price. The wrong decisions
can bring higher debt costs and lower stock
prices.
General Electric Capital Corp., a
subsidiary of General Electric,
experienced the negative effects of market
scrutiny of its debt management policies.
Analysts complained that GE had been
slow to refinance its mountains of short-
term debt. GE had issued these current
obligations, with maturities of 270 days or
WHAT’S YOUR PRINCIPLE
WHAT ABOUT THAT SHORT-TERM DEBT?
less, when interest rates were low.
However, in light of expectations that the
Fed would raise interest rates, analysts
began to worry about the higher interest
costs GE would pay when it refinanced
these loans. Some analysts recommended
that it was time to reduce dependence on
short-term credit. The reasoning goes that
a shift to more dependable long-term debt,
thereby locking in slightly higher rates for
the long-term, is the better way to go.
Thus, scrutiny of GE debt strategies led to
analysts’ concerns about GE’s earnings
prospects. Investors took the analysis to
heart, and GE experienced a two-day 6
percent drop in its stock price.
Source: Adapted from Steven Vames, “Credit Quality,
Stock Investing Seem to Go Hand in Hand,” Wall Street
Journal (April 1, 2002), p. R4.
LO 2
27. 13-27
Amount owed by a corporation to its stockholders as a
result of board of directors’ authorization.
Generally paid within three months.
Undeclared dividends on cumulative preferred stock not
recognized as a liability.
Dividends payable in the form of additional shares of
stock are reported in stockholders’ equity.
Dividends Payable
Current Liabilities
LO 2
28. 13-28
Returnable cash deposits received from customers and
employees.
To guarantee performance of a contract or service or
As guarantees to cover payment of expected future
obligations.
May be classified as current or long-term liabilities.
Customer Advances and Deposits
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.
Current Liabilities
29. 13-29
Payment received before delivering goods or rendering
services?
Unearned Revenues
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.
Illustration 13-3
Unearned and Earned
Revenue Accounts
Current Liabilities
30. 13-30
Illustration: Allstate University sells 10,000 season football
tickets at $50 each for its five-game home schedule. Allstate
University records the sales of season tickets as follows.
Aug. 6 Cash 500,000
Unearned Sales Revenue 500,000
(10,000 x $50 = $500,000)
Current Liabilities
LO 2
As each game is completed, Allstate makes the following entry.
Dec. 31 Unearned Sales Revenue 100,000
Sales Revenue 100,000
($500,000 ÷ 5 games = $100,000 per game)
31. 13-31
Users of financial statements generally examine
current liabilities to assess a company’s liquidity
and overall financial flexibility. Companies must
pay many current liabilities, such as accounts
payable, wages payable, and taxes payable,
sooner rather than later. A substantial increase in
these liabilities should raise a red flag about a
company’s financial position.
This is not the case for all current liabilities. For
example, Microsoft has a current liability entitled
“Unearned revenue” of $14,830 million in 2010
that has increased year after year. Unearned
revenue is a liability that arises from sales of
Microsoft products such as Internet Explorer and
Windows XP. Microsoft also has provided
coupons for upgrades to its programs to bolster
sales of its Xbox consoles. At the time of a sale,
customers pay not only for the current version of
the software but also for future upgrades.
Microsoft recognizes sales revenue from the
current version of the software and records as a
WHAT’S YOUR PRINCIPLE
MICROSOFT’S LIABILITIES-GOOD OR BAD?
liability (unearned revenue) the value of future
upgrades to the software that it “owes” to
customers.
Market analysts read such an increase in
unearned revenue as a positive signal about
Microsoft’s sales and profitability. When
Microsoft’s sales are growing, its unearned
revenue account increases. Thus, an increase in
a liability is good news about Microsoft sales. At
the same time, a decline in unearned revenue is
bad news. As one analyst noted, a slowdown or
reversal of the growth in Microsoft’s unearned
revenues indicates slowing sales, which is bad
news for investors. Thus, increases in current
liabilities can sometimes be viewed as good signs
instead of bad.
Source: Adapted from David Bank, “Some Fans Cool to
Microsoft, Citing Drop in Old Indicator,” Wall Street
Journal (October 28, 1999); and Bloomberg News,
“Microsoft Profit Hit by Deferred Sales; Forecast Raised,”
The Globe and Mail (January 26, 2007), p. B8.
LO 2
32. 13-32
Retailers must collect sales taxes from customers on
transfers of tangible personal property and on certain services
and then remit to the proper governmental authority.
Sales Taxes Payable
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.
Current Liabilities
33. 13-33
Cash 3,120
Sales Revenue 3,000
Sales Taxes Payable ($3,000 x 4% = $120) 1,800
Illustration: Prepare the entry to record sales taxes assuming
there was a sale of $3,000 when a 4 percent sales tax is in effect.
LO 2
Current Liabilities
34. 13-34
Many companies do not segregate the sales tax and the amount of
the sale at the time of sale. Instead, the company credits both
amounts in total in the Sales Revenue account.
Illustration: Assume the Sales Revenue account balance of
$150,000 includes sales taxes of 4 percent. Prepare the entry to
record the amount due the taxing unit.
Sales Revenue 5,769.23
Sales Taxes Payable 5,769.23
LO 2
Current Liabilities
Tax calculation = ($150,000 ÷ 1.04 = $144,230.77 - $150,000 = $5,769.23)
35. 13-35
Businesses must prepare an income tax return and compute
the income tax payable.
Taxes payable are a current liability.
Corporations must make periodic tax payments.
Differences between taxable income (tax law) and accounting
income (GAAP) sometimes occur (Chapter 19).
Income Tax Payable
LO 2 Explain the classification issues of short-term
debt expected to be refinanced.
Current Liabilities
36. 13-36
4. Identify the criteria used to account for
and disclose gain and loss contingencies.
5. Explain the accounting for different types
of loss contingencies.
6. Indicate how to present and analyze
liabilities and contingencies.
After studying this chapter, you should be able to:
LEARNING OBJECTIVES
1. Describe the nature, type, and valuation of
current liabilities.
2. Explain the classification issues of short-t
erm debt expected to be refinanced.
3. Identify types of employee-related liabilitie
s.
Current Liabilities
and Contingencies
13
37. 13-37
Amounts owed to employees for salaries or wages are
reported as a current liability.
Employee-Related Liabilities
Current liabilities related to employee compensation may
include:
Payroll deductions.
Compensated absences.
Bonuses.
LO 3 Identify types of employee-related liabilities.
Current Liabilities
38. 13-38
Payroll Deductions
Most common types of payroll deductions are taxes,
insurance premiums, employee savings, and union dues.
LO 3
Current Liabilities
Social Security Taxes (since January 1, 1937).
►Federal Old Age, Survivor, and Disability Insurance (OASDI)
benefits for certain individuals and their families.
►Funds from taxes levied on both employer and employee.
►Current rate 6.2 percent based on the employee’s gross pay up to a
$110,100 annual limit.
►OASDI tax is usually referred to as FICA.
39. 13-39
Social Security Taxes (since January 1, 1937).
►In 1965, Congress passed the first federal health insurance
program for the aged—popularly known as Medicare.
►Alleviates the high cost of medical care for those over age 65.
►Hospital Insurance tax, paid by both employee and employer at the
rate of 1.45 percent on the employee’s total compensation.
►OASDI tax (FICA) and the federal Hospital Insurance Tax is
referred to as the Social Security tax.
Payroll Deductions
LO 3
Current Liabilities
40. 13-40
Unemployment Taxes.
Provides a system of unemployment insurance.
Federal Unemployment Tax Act (FUTA):
► Only employers pay the unemployment tax.
► Rate is 6.2 percent on the first $7,000 of compensation paid
to each employee during the calendar year.
► If employer is subject to a state unemployment tax of 5.4
percent or more it receives a tax credit (not to exceed 5.4
percent) and pays only 0.8 percent tax to the federal
government.
Payroll Deductions
LO 3
Current Liabilities
41. 13-41
Unemployment Taxes.
State unemployment compensation laws differ both from the
federal law and among various states.
Employers must refer to the unemployment tax laws in each
state in which they pay wages and salaries.
Payroll Deductions
LO 3
Current Liabilities
42. 13-42
Income Tax Withholding.
►Federal and some state income tax laws require employers to
withhold from each employee’s pay the applicable income tax due on
those wages.
Payroll Deductions
LO 3
Current Liabilities
Illustration 13-5
Summary of Payroll Liabilities
43. 13-43
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 the salaries and wages
paid and the employee payroll deductions as follows:
Salaries and Wages Expense 10,000
Withholding Taxes Payable 1,320
FICA Taxes Payable 765
Union Dues Payable 88
Cash 7,827
LO 3 Identify types of employee-related liabilities.
Current Liabilities
44. 13-44
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 the employers payroll
taxes as follows:
Payroll Tax Expense 1,245
FICA Taxes Payable 765
FUTA Taxes Payable 80
SUTA Taxes Payable 400
LO 3 Identify types of employee-related liabilities.
Current Liabilities
45. 13-45
Compensated Absences
LO 3 Identify types of employee-related liabilities.
Paid absences for vacation, illness, and holidays.
Accrue a liability if all the following conditions exist.
The employer’s obligation is attributable to employees’
services already rendered.
The obligation relates to rights that vest or accumulate.
Payment of the compensation is probable.
The amount can be reasonably estimated.
Current Liabilities
46. 13-46
Compensated Absences
LO 3 Identify types of employee-related liabilities.
Current Liabilities
Illustration 13-6
Balance Sheet Presentation
of Accrual for Compensated
Absences
47. 13-47
Illustration: Amutron Inc. employs 10 individuals and pays each
$480 per week. Employees earned 20 unused vacation weeks in
2014. In 2015, the employees used the vacation weeks, but now they
each earn $540 per week. Amutron accrues the accumulated vacation
pay on December 31, 2014, as follows.
Salaries and Wages Expense 9,600
Salaries and Wages Payable ($480 x 20) 9,600
LO 3
In 2015, it records the payment of vacation pay as follows.
Salaries and Wages Payable 9,600
Salaries and Wages Expense 1,200
Cash ($540 x 20) 10,800
Current Liabilities
48. 13-48 LO 3 Identify types of employee-related liabilities.
Payments to certain or all employees in addition to their
regular salaries or wages.
Bonuses paid are an operating expense.
Unpaid bonuses should be reported as a current
liability.
Bonus Agreements
Current Liabilities
49. 13-49
Illustration: Palmer Inc. shows income for the year 2014 of
$100,000. It will pay out bonuses of $10,700 in January 2015. Palmer
makes an adjusting entry dated December 31, 2014, to record the
bonuses as follows.
Salaries and Wages Expense 10,700
Salaries and Wages Payable 10,700
LO 3
In 2015, Palmer records the payment of the bonus as follows.
Salaries and Wages Payable 10,700
Cash 10,700
Current Liabilities
50. 13-50
4. Identify the criteria used to account for
and disclose gain and loss contingencies.
5. Explain the accounting for different types
of loss contingencies.
6. Indicate how to present and analyze
liabilities and contingencies.
After studying this chapter, you should be able to:
LEARNING OBJECTIVES
1. Describe the nature, type, and valuation of
current liabilities.
2. Explain the classification issues of short-t
erm debt expected to be refinanced.
3. Identify types of employee-related liabilitie
s.
Current Liabilities
and Contingencies
13
51. 13-51
“An existing condition, situation, or set of circumstances
involving uncertainty as to possible gain (gain
contingency) or loss (loss contingency) to an enterprise
that will ultimately be resolved when one or more future
events occur or fail to occur.”*
Contingencies
* FASB ASC 450-10-05-4. [Predecessor literature: “Accounting for
Contingencies,” Statement of Financial Accounting Standards No. 5
(Stamford, Conn.: FASB, 1975), par. 1.]
LO 4
52. 13-52
Contingencies
Typical Gain Contingencies are:
1. Possible receipts of monies from gifts, donations, asset
sales, and so on.
2. Possible refunds from the government in tax disputes.
3. Pending court cases with a probable favorable outcome.
4. Tax loss carryforwards (Chapter 19).
Gain contingencies are not recorded.
Disclosed only if probability of receipt is high.
Gain Contingencies
LO 4
53. 13-53
4. Identify the criteria used to account for
and disclose gain and loss contingencies.
5. Explain the accounting for different types
of loss contingencies.
6. Indicate how to present and analyze
liabilities and contingencies.
After studying this chapter, you should be able to:
LEARNING OBJECTIVES
1. Describe the nature, type, and valuation of
current liabilities.
2. Explain the classification issues of short-t
erm debt expected to be refinanced.
3. Identify types of employee-related liabilitie
s.
Current Liabilities
and Contingencies
13
54. 13-54
Involves possible losses.
Loss Contingencies
FASB uses three areas of probability:
Probable.
Reasonably possible.
Remote.
Contingencies
LO 5
Likelihood of Loss
56. 13-56
Illustration: Scorcese Inc. is involved in a lawsuit at December 31,
2014. (a) Prepare the December 31 entry assuming it is probable
that Scorcese will be liable for $900,000 as a result of this suit. (b)
Prepare the December 31 entry, if any, assuming it is not probable
that Scorcese will be liable for any payment as a result of this suit.
(a) Lawsuit Loss 900,000
Lawsuit Liability 900,000
Loss Contingencies
(b) No entry is necessary. The loss is not accrued because it
is not probable that a liability has been incurred at
12/31/14.
LO 5
58. 13-58
Loss Contingencies
Common loss contingencies:
1. Litigation, claims, and assessments.
2. Guarantee and warranty costs.
3. Premiums and coupons.
4. Environmental liabilities.
LO 5
59. 13-59
Loss Contingencies
Companies must consider the following factors, in determining
whether to record a liability with respect to pending or
threatened litigation and actual or possible claims and
assessments.
Litigation, Claims, and Assessments
Time period in which the action occurred.
Probability of an unfavorable outcome.
Ability to make a reasonable estimate of the loss.
LO 5 Explain the accounting for different types of loss contingencies.
60. 13-60
Loss Contingencies
Promise made by a seller to a buyer to make good on a
deficiency of quantity, quality, or performance in a product.
Guarantee and Warranty Costs
LO 5 Explain the accounting for different types of loss contingencies.
Cash-Basis Method.
Expense warranty costs as incurred, because
1. it is not probable that a liability has been incurred, or
2. it cannot reasonably estimate the amount of the
liability.
61. 13-61
Loss Contingencies
Promise made by a seller to a buyer to make good on a
deficiency of quantity, quality, or performance in a product.
Guarantee and Warranty Costs
LO 5 Explain the accounting for different types of loss contingencies.
Accrual-Basis Method.
Charge warranty costs to operating expense in the
year of sale.
1. Method is the generally accepted method.
2. Referred to as the expense warranty approach.
62. 13-62
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
Illustration: Denson Machinery Company begins production on a
new machine in July 2014, and sells 100 units at $5,000 each by its
year-end, December 31, 2014. Each machine is under warranty for
one year. Denson estimates that the warranty cost will average $200
per unit. Further, as a result of parts replacements and services
rendered in compliance with machinery warranties, it incurs $4,000 in
warranty costs in 2014 and $16,000 in 2015.
1.Sale of 100 machines at $5,000 each, July through December 2014:
Cash or Accounts Receivable 500,000
Sales Revenue 500,000
63. 13-63
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
2. Recognition of warranty expense, July through December 2014:
Warranty Expense 4,000
Cash, Inventory, Accrued Payroll 4,000
Warranty Expense 16,000
Warranty Liability 16,000
3. Recognition of warranty costs incurred in 2015 (on 2014 sales):
Warranty Liability 16,000
Cash, Inventory, Accrued Payroll 16,000
64. 13-64
Loss Contingencies
Companies should charge the costs of premiums and
coupons to expense in the period of the sale that benefits
from the plan.
Premiums and Coupons
Company estimates the number of
outstanding premium offers that
customers will present for redemption.
Company charges the cost of
premium offers to Premium Expense
and credits Premium Liability.
LO 5
65. 13-65
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
Illustration: Fluffy Cakemix Company offered its customers a large,
nonbreakable mixing bowl in exchange for 25 cents and 10 boxtops.
The mixing bowl costs Fluffy Cakemix Company 75 cents, and the
company estimates that customers will redeem 60 percent of the
boxtops. The premium offer began in June 2014 and resulted in the
transactions journalized below. Fluffy Cakemix Company records
purchase of 20,000 mixing bowls as follows.
Inventory of Premiums 15,000
Cash 15,000
$20,000 x .75 = $15,000
66. 13-66
Loss Contingencies
LO 5
Illustration: The entry to record sales of 300,000 boxes of cake mix
at 80 cents would be:
Cash 240,000
Sales Revenue 240,000
300,000 x .80 = $240,000
Fluffy records the actual redemption of 60,000 boxtops, the receipt
of 25 cents per 10 boxtops, and the delivery of the mixing bowls as
follows.
Cash [(60,000 ÷ 10) x $0.25] 1,500
Premium Expense 3,000
Inventory of Premiums 4,500
Computation: (60,000 ÷ 10) x $0.75 = $4,500
67. 13-67
Loss Contingencies
Illustration: Finally, Fluffy makes an end-of-period adjusting entry
for estimated liability for outstanding premium offers (boxtops) as
follows.
Premium Expense 6,000
Premium Liability 6,000
LO 5 Explain the accounting for different types of loss contingencies.
68. 13-68
Numerous companies offer premiums to
customers in the form of a promise of
future goods or services as an incentive for
purchases today. Premium plans that have
widespread adoption are the frequent-flyer
programs used by all major airlines. On the
basis of mileage accumulated, frequent-
flyer members receive discounted or free
airline tickets. Airline customers can earn
miles toward free travel by making long-
distance phone calls, staying in hotels, and
charging gasoline and groceries on a credit
card. Those free tickets represent an
enormous potential liability because people
using them may displace paying
passengers.
WHAT’S YOUR PRINCIPLE
FREQUENT FLYERS
When airlines first started offering frequent-
flyer bonuses, everyone assumed that they
could accommodate the free-ticket holders
with otherwise-empty seats. That made the
additional cost of the program so minimal
that airlines didn’t accrue it or report the
small liability. But, as more and more
paying passengers have been crowded off
flights by frequent-flyer awardees, the loss
of revenues has grown enormously. For
example, United Continental Holdings at
one time reported a liability of $2.4 billion
for frequent-flyer tickets.
Although the profession has studied the
accounting for this transaction, no
authoritative guidelines have been issued.
LO 5
69. 13-69
Loss Contingencies
A company must recognize an asset retirement obligation
(ARO) when it has an existing legal obligation associated with
the retirement of a long-lived asset and when it can reasonably
estimate the amount of the liability.
ARO’s should be recorded as fair value.
Environmental Liabilities
LO 5 Explain the accounting for different types of loss contingencies.
70. 13-70
Loss Contingencies
Environmental Liabilities
Obligating Events. Examples of existing legal obligations,
which require recognition of a liability include, but are not
limited to:
Decommissioning nuclear facilities;
Dismantling, restoring, and reclamation of oil and gas
properties;
Certain closure, reclamation, and removal costs of mining
facilities;
Closure and post-closure costs of landfills.
LO 5
71. 13-71
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
Illustration: On January 1, 2014, Wildcat Oil Company erected an
oil platform in the Gulf of Mexico. Wildcat is legally required to
dismantle and remove the platform at the end of its useful life,
estimated to be five years. Wildcat estimates that dismantling and
removal will cost $1,000,000. Based on a 10 percent discount rate,
the fair value of the asset retirement obligation is estimated to be
$620,920 ($1,000,000 x .62092). Wildcat records this ARO as
follows.
Drilling Platform 620,920
Asset Retirement Obligation 620,920
72. 13-72
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
Illustration: During the life of the asset, Wildcat allocates the asset
retirement cost to expense. Using the straight-line method, Wildcat
makes the following entries to record this expense.
Depreciation Expense ($620,920 ÷ 5) 124,184
Accumulated Depreciation 124,184
December 31, 2014 through 2018
73. 13-73
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
Illustration: In addition, Wildcat must accrue interest expense each
period. Wildcat records interest expense and the related increase in
the asset retirement obligation on December 31, 2014, as follows.
December 31, 2014
Interest Expense ($620,092 x 10%) 62,092
Asset Retirement Obligation 62,092
74. 13-74
Loss Contingencies
LO 5 Explain the accounting for different types of loss contingencies.
Illustration: On January 10, 2019, Wildcat contracts with Rig
Reclaimers, Inc. to dismantle the platform at a contract price of
$995,000. Wildcat makes the following journal entry to
record settlement of the ARO.
Asset Retirement Obligation 1,000,000
Gain on Settlement of ARO 5,000
Cash 995,000
January 10, 2019
75. 13-75
Loss Contingencies
Self-insurance is not insurance, but risk assumption.
There is little theoretical justification for the establishment of a
liability based on a hypothetical charge to insurance expense.
Self-Insurance
LO 5
Illustration 13-12
Disclosure of Self-Insurance
76. 13-76
4. Identify the criteria used to account for
and disclose gain and loss contingencies.
5. Explain the accounting for different types
of loss contingencies.
6. Indicate how to present and analyze
liabilities and contingencies.
After studying this chapter, you should be able to:
LEARNING OBJECTIVES
1. Describe the nature, type, and valuation of
current liabilities.
2. Explain the classification issues of short-t
erm debt expected to be refinanced.
3. Identify types of employee-related liabilitie
s.
Current Liabilities
and Contingencies
13
77. 13-77
Presentation and Analysis
Presentation of Current Liabilities
Usually reported at their full maturity value.
Difference between present value and the maturity
value is considered immaterial.
Companies may list the accounts in
► Order of maturity,
► Descending order of amount, or
► Order of liquidation preference.
LO 6 Indicate how to present and analyze liabilities and contingencies.
79. 13-79
Presentation and Analysis
Presentation of Current Liabilities
LO 6 Indicate how to present and analyze liabilities and contingencies.
If a company excludes a short-term obligation from current
liabilities because of refinancing, it should include the
following in the note to the financial statements:
1. A general description of the financing agreement.
2. The terms of any new obligation incurred or to be incurred.
3. The terms of any equity security issued or to be issued.
80. 13-80
Presentation and Analysis
Presentation of Current Liabilities
LO 6 Indicate how to present and analyze liabilities and contingencies.
Illustration 13-14
Actual Refinancing of Short-Term Debt
81. 13-81
Companies should disclose certain other contingent liabilities.
1. Guarantees of indebtedness of others.
2. Obligations of commercial banks under “stand-by letters of
credit.”
3. Guarantees to repurchase receivables (or any related property)
that have been sold or assigned.
Presentation and Analysis
Disclosure should include:
Nature of the contingency.
An estimate of the possible loss or range of loss or a
statement that an estimate cannot be made.
Presentation of Contingencies
LO 6
83. 13-83
Two ratios to help
assess liquidity are:
Illustration 13-19
LO 6
Presentation and Analysis
Analysis of
Current Liabilities
Advance slide in presentation mode to reveal answers.
Illustration 13-13
84. 13-84
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
RELEVANT FACTS - Similarities
Similar to U.S. practice, IFRS requires that companies present current
and non-current liabilities on the face of the statement of financial
position (balance sheet), with current liabilities generally presented in
order of liquidity. However, many companies using IFRS present non-
current liabilities before current liabilities on the statement of financial
position.
85. 13-85
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
RELEVANT FACTS - Similarities
The basic definition of a liability under GAAP and IFRS is very similar. In
a more technical way, liabilities are defined by the IASB as a present
obligation of the entity arising from past events, the settlement of which
is expected to result in an outflow from the entity of resources
embodying economic benefits. Liabilities may be legally enforceable via
a contract or law but need not be. That is, they can arise due to normal
business practices or customs.
IFRS requires that companies classify liabilities as current or non-current
on the face of the statement of financial position (balance sheet), except
in industries where a presentation based on liquidity would be
considered to provide more useful information (such as financial
institutions).
86. 13-86
RELEVANT FACTS - Differences
Under IFRS, the measurement of a provision related to a contingency is
based on the best estimate of the expenditure required to settle the
obligation. If a range of estimates is predicted and no amount in the
range is more likely than any other amount in the range, the “midpoint”
of the range is used to measure the liability. In GAAP, the minimum
amount in a range is used.
Both IFRS and GAAP prohibit the recognition of liabilities for future
losses. However, IFRS permits recognition of a restructuring liability,
once a company has committed to a restructuring plan. GAAP has
additional criteria (i.e., related to communicating the plan to employees)
before a restructuring liability can be established.
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
87. 13-87
RELEVANT FACTS - Differences
IFRS and GAAP are similar in the treatment of asset retirement
obligations (AROs). However, the recognition criteria for an ARO are
more stringent under GAAP: The ARO is not recognized unless there is
a present legal obligation and the fair value of the obligation can be
reasonably estimated.
Under IFRS, short-term obligations expected to be refinanced can be
classified as non-current if the refinancing is completed by the financial
statement date. GAAP uses the date the financial statements are issued.
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
88. 13-88
RELEVANT FACTS - Differences
IFRS uses the term provisions to refer to estimated liabilities. Under
IFRS, contingencies are not recorded but are often disclosed. The
accounting for provisions under IFRS and estimated liabilities under
GAAP are very similar.
GAAP uses the term contingency in a different way than IFRS.
Contingent liabilities are not recognized in the financial statements under
IFRS, whereas under GAAP, a contingent liability is sometimes
recognized.
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
89. 13-89
Under IFRS, a provision is the same as:
a. a contingent liability.
b. an estimated liability.
c. a contingent gain.
d. None of the above.
IFRS SELF-TEST QUESTION
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
90. 13-90
IFRS SELF-TEST QUESTION
A typical provision is:
a. bonds payable.
b. cash.
c. a warranty liability.
d. accounts payable.
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.
91. 13-91
In determining the amount of a provision, a company using IFRS
should generally measure:
a. using the midpoint of the range between the lowest possible
loss and the highest possible loss.
b. using the minimum amount of the loss in the range.
c. using the best estimate of the amount of the loss expected to
occur.
d. using the maximum amount of the loss in the range.
IFRS SELF-TEST QUESTION
LO 7 Compare the accounting procedures for current
liabilities and contingencies under GAAP and IFRS.