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