Summary-Ch 13 - Summary Ch 13 Main issues Classification...

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Summary: Ch. 13 Main issues: Classification: Current liability vs. Long-term liability Accounting for contingent gain or loss 1. Current liability - Nature of current liability: Obligations whose liquidation is reasonably expected to require the use of existing resources classified as current assets , or the creation of other current liability - Two types of current liabilities: Determinable or contingent liabilities 2. Determinable current liabilities a. Accounts payable: Cash discount - the effect of gross method and net method, bank overdraft b. Note payable: Interest bearing notes and zero-interest bearing notes Zero-interest bearing notes : The borrower receives an amount equal to the face value of the note less the interest. The note is recorded at its face value and the “prepaid” interest is recorded in Discount on Notes Payable account. c. Current maturities of long-term debt : That proportion of long-term debt that matures within the next fiscal year is reported as a current liability, unless it is to be refinanced by a new debt issue or by conversion into stock d. Short-term obligations expected to be refinanced Must be excluded from current liabilities only if the firm: (1) Intends to refinance, and (2) Demonstration an ability to refinance Ability can be evidenced by: (1) Actual refinancing between end of the fiscal period and financial statement reporting date (2) Signing a refinancing agreement which is non-cancellable and not violated Refinancing must occur before current debt is due
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e. Dividends payable
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Summary-Ch 13 - Summary Ch 13 Main issues Classification...

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