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E14-1 Classification of Liabilities Presented below are various account balances. (a) Bank loans payable of a winery due March 10, 2014. (The product requires aging for 5 years before sale). Current liability IF current assets are used to satisfy debt. (b) Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year. Valuation account relating to the long-term liability, bonds payable (sometimes referred to as an adjunct account). The $3,000 would continue to be reported as long-term. Serial bonds payable,$1,000,000, of which $250,000 are due each July 31. Current liability, $250,000; long-term liability, $750,000. (d) Amounts withheld from employees' wages for income taxes. Current liability (e) Notes payable due January 15, 2013. Probably noncurrent, although if operating cycle is greater than one year and current assets are used, this item would be classified as current. (f) Credit balances in customers' accounts arising from returns and allowances after collection in full of account. Current liability (g) Bonds payable of $2,000,000 maturing June 30, 2012. Current liability unless (a) a fund for liquidation has been accumulated which is not classified as a current asset or (b) arrangements have been made for refinancing. (h) Overdraft of $1,000 in a bank accounts. (No other balances are carried at this bank). Current liability (i) Deposits made by customers who have ordered goods. Current liability Instructions: Indicate whether each of the items above should be classified on December 31, 2011, as a current liability, a long-term liability, or under some other classification. Consider each one independently from all others; that is, do not assume that all of them relate to one particular business. If the classification of some of the items is doubtful, explain why in each case. re E14-2 Classification The following items are found in the financial statements. (a) Discount on bonds payable Contra account to bonds payable on balance sheet. (b) Interest expense (credit balance) Reclassify to interest payable on balance sheet. Unamortized bond issue costs Classified as "Other Assets" on balance sheet. (d) Gain on repurchase of debt Classify as part of other gains and losses on the income statement. (e) Mortgage payable (payable in equal amounts over next 3 years). Classify one-third as current liability and the remainder as long-term liability on balance sheet. (f) Debenture bonds payable (maturing in 5 years) Classify as long-term liability on balance sheet. (g) Premium on bonds payable. Classify as adjunct account to Bonds Payable on balance Sheet. (h) Notes payable (due in 4 years) Classify as long-term on balance sheet (i) Income bonds payable (due in 3 years) Classify as long-term liability on balance sheet.... View Full Document

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