ch 13 - ACC2110 Solutions Chapter 13 ANSWERS TO QUESTIONS...

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ACC2110 – Solutions Chapter 13 ANSWERS TO QUESTIONS Q13-1 Liabilities are the probable future sacrifices of economic benefits arising from present obligations of a company to transfer assets or provide future services to other entities in the future as a result of past transactions or events. Probable refers to what can reasonably be expected or believed based on available evidence or logic. Obligations refer to duties imposed legally or socially which one is bound to do by contract, promise, or moral responsibility. Q13-3 The three characteristics of a liability are: 1. It involves a responsibility of a company that will be settled by the probable future transfer or use of assets at a specified or determinable date, on occurrence of a specified event, or on demand. 2. The responsibility obligates the company, so that it has little or no discretion to avoid the future sacrifice. 3. The transaction or other event obligating the company has already happened The main features of these 3 characteristics are the transfer or use of assets, the requirement for settlement of the obligation, and the fact that the liability transaction must have already occurred. Q13-4 False. A company does not need to know the identity of the recipient before the time of settlement, as long as the three criteria are met. Q13-10 Compensated absences are employee absences including vacation, holiday, illness, or other personal activities for which a company pays its employees. Items such as severance pay, share options, and long-term fringe benefits are not included. A company accounts for compensated absences by recording an expense and accruing a liability if: (1) the obligation is based on employee services already rendered, (2) it relates to rights that accumulate, (3) payment is probable, and (4) the amount can be reasonably estimated. If all conditions are met except the ability to make a reasonable estimate, the company discloses the facts relating to the other conditions in the notes to its financial statements. Q13-13
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ch 13 - ACC2110 Solutions Chapter 13 ANSWERS TO QUESTIONS...

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