Note-Ch13 - Chapter 13 Current Liabilities and...

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Chapter 13 Current Liabilities and Contingencies < Learning Objectives > After studying this chapter, you should be able to: 1. Describe the nature, type, and valuation of current liabilities. 2. Explain the classification issues of short-term debt expected to be refinanced. 3. Identify types of employee-related liabilities. 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 current liabilities and contingencies are presented and analyzed. 1. What is a “ Current Liabilities ”? What is a liability ? Probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or to provide services to other entities in the future as a result of past transactions or events. FASB Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements” Current liabilities are: Obligations whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabilities. Accounting Research Bulletin No. 43, “Restatement and Revision of Accounting Research Bulletins”. SFAS No.78 indicates that current liabilities should include obligations that are due on demand or that will become due on demand within one year from the balance sheet date. 2. Typical current liabilities Accounts payable, Notes payable, Current maturities of long-term debt, Short-term obligations expected to be refinanced, Dividends Payable, Returnable deposits, Unearned revenues, Sales taxes payable, Income taxes payable, Employee-related
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Liabilities a. Notes Payables (N/P) Notes Payables are written promises to pay a certain sum of money on a specified future date. Notes payable that arise from cash-borrowing activities are generally of two types: (1) Interest- bearing notes, and (2) Zero-interest-bearing (=Noninterest-bearing) notes. Accounting and reporting for interest-bearing notes requires the accountant to accrue interest and report a liability in the amount of the accrued interest payable plus the face value of the note. Noninterest-bearning notes do not pay any stated rate of interest in addition to the face amount of the notes. The lender deducts interest on such notes in advance and issues the notes at discount. The borrower receives an amount that is less than the face value of the note (e.g., receives in cash the PV of the note). The Discount on Notes Payable is a contra account to N/P and therefore is subtracted from Notes Payable on the balance sheet. The discount is charged to interest expense over the life of the note. Example 13-1 (WSH P602!!) Assume that on November 1, 2003, Chesterfield Company issues a $100,000, one-year non- interest-bearing note to a bank and the present value of the note is $88,000. The entry to record this transaction is:
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Note-Ch13 - Chapter 13 Current Liabilities and...

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