Intermediate Accounting Chapter 13: Current Liabilities
Disclosure of Contingencies should include
-nature of the contingency -an estimate of the possible loss or range of loss or statement that an estimate cannot be made
Employee-related Liabilities
-payroll deductions -compensated absences -bonuses
Employer payroll taxes include
1) federal unemployment taxes 2) state unemployment taxes 3) FICA taxes
A company is required to exclude a short-term obligation from the current liabilities is
1) it intends to refinance the obligation on a long-term bassis 2) must demonstrate an ability to consummate the refinancing by actually refinancing the short-term obligation or entering into a financing agreement
Common Loss Contingencies
1. Litigation, claims, assessments 2. Guarantee and warranty costs 3. Premiums and coupons 4. Environmental Liabilities
If co excludes short-term obligations from because of refinancing, notes to the financial statement should include
1. general description of the financing agreement 2. any new obligation incurred 3. equity security issued
Companies should disclose certain contingencies
1. guarantee indebtedness of others 2. obligations of commercial banks under stand-by letters of credit 3. guarantees to repurchase receivables that have been sold or assigned
Typical Gain Contingencies
1. receipts from monies from gifts and donations 2. refunds from tax refunds 3. pending court cases with probable favorable outcome 4. tax loss carryforward GAIN NOT RECORDED
Which of the following is not a liability? a) an unused line of credit b) estimated income taxes c) sales tax collected from customers d) advances from customers
An unused line of credit
Income Tax Payable
Businesses must prepare income tax return and compute the income tax payable -current liability -corp must make periodic tax payments
Short-Term Obligations Expected to be Refinanced
EXCLUDE from current liabilities and report as long-term if BOTH obligations are met: 1) INTEND TO REFINANCE the obligation on a long-term basis 2) DEMONSTRATE AN ABILITY to refinance 3) actual refinancing should be completed before the statement issuance date
FUTA
Federal Unemployment Tax Act -only employers pay FUTA
In accounting for short-term debt expected to be refinanced to long-term debt
IFRS uses the financial statement date to determine classification of short-term debt o be refinanced *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 current ratio measures
Liquidity (firm's ability to meet its currently maturing debt)
Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of
Materiality: amount of tolerable misstatement of clients financial statement in relationship to the amount of assessed risk
FICA
OASDI (Old Age, Survivor, and Disability Insurance) -levied on both employer and employee -Social Security Tax
Which of the following is not an example of a current liability? a) dividends payable b) salaries payable c) preferred dividends in arrears d) unearned service revenue
Preferred dividends in arrears (money that is owed)
Medicare
alleviates the high cost of med care for those over 65 -both employer and employee -Social Security Tax
Dividends Payable
amount owed by a corp to its stockholders as a result of board directors' authorization
Accrued liabilities are disclosed in the financial statements by
appropriately classifying them as regular liabilities in the balance sheet
Consideration Payable
companies often make pmt to provide their customers as part of a revenue arrangement -premiums, coupons, cash rebate companies should charge costs of premiums and coupons to expense in the period of the sale
Environmental Liabilities
company must recognize ASSET RETIREMENT OBLIGATION (ARO) when it has an existing legal obligation associated with the retirement of a long-lived asset ARO- recorded at Fair Value
Which of the following statement is false? a) compensated absences are usually reported as long-term liability b) liability for compensated abences should be recognized in the year earned c) when rights are vested, an employer has an obligation to make payment to an employee d) unemployment taxes are paid by the employer
compensated absences are usually reported as a current liability not a long-term liability
A discount on a non-interest-bearing note payable is classified in the balance sheet as
contra liability
Under the IFRS, a provision is a
liability of uncertain timing or amount and is sometimes referred to as an estimated liability
Gain contingencies are
never recorded
A loss related to general or unspecified business risks is
not accrued
Self-Insurance
not insurance, but RISK ASSUMPTION
Gain contingencies are
not recorded
Liabilities
obligations arising from past transactions and payable in assets or services in the future
Compensated Absences
paid absences from employment such as vacation, illness, and holidays must meet all requirements: 1) employer's obligation to employees' services ALREADY RENDERED 2) obligation related to rights that VEST or ACCUMULATE 3) payment of compensation is PROBABLE 4) amount can be REASONABLY ESTIMATED
Current Maturities of Long-Term Debt
portion of long-term indebtedness that matures within the next fiscal year EXCLUDE long-term debts maturing if... 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 3) converted into capital stock
Presenation of Current Liabilities
reported at full maturity value different between PV and maturity value IMMATERIAL list accounts in... 1. order of maturity 2. descending order 3. order of liquidation
Sales Taxes Payable
retailers must collect sales taxes from customers on transfers of tangible personal property and remit to the proper governmental authority
Customer Advances and Depostis
returnable cash deposits from customers and employees -to guarantee performance of a contract or cover payment of expected future obligations -may be current or long-term liabilities
The acid test-ratio relates total current liabilities to cash
short-term, investments, and receivables
State and federal unemployment taxes are imposed
solely on the employer
A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if
the incurrence of a loss is reasonably possible