Lecture+Note+Chapter+13+with+answers

Lecture+Note+Chapter+13+with+answers - Chapter 13: Current...

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Unformatted text preview: Chapter 13: Current Liabilities Read: Chapter 13 In-class exercise: EX13-4, EX13-10, EX13-12, EX13-14, EX13-17, EX13-18, Practice exercise: BE13-23, P13-1, P13-2, P13-6 1 Current Liabilities Current liability described as ( not defined in CICA Handbook) : Amounts payable within one year from the date of the balance sheet or within the normal operating cycle where this is longer than a year. Financial Liabilities short-term in nature are normally reported at their maturity value (i.e. the amount of cash payable in the future) Common current liabilities include: 1. Bank indebtedness and credit facilities 2. Accounts Payable 3. Notes payable 4. Current maturities of long-term debt 5. Short-term debt expected to be refinanced 6. Dividends payable 7. Rents and royalties payable 8. Returnable deposits 9. Unearned revenues 10. Sales taxes payable 11. Goods and Services Tax payable 12. Income taxes payable 13. Employee-related liabilities 2 Notes Payable Notes payable are written promises to pay a sum of money on a specified future date Arises from purchases, financing or other transactions Notes payable may be classified as either short-term or long-term Notes payable may be interest-bearing or zero-interest-bearing (non-interest- bearing) In both cases, interest expense is determined whenever financial statements are prepared Landscape Corp. borrows $100,000 Signs a 4-month, 12% note on March 1 March 1: Cash 100,000 Notes Payable 100,000 June 30: Interest Expense 4,000 Interest Payable 4,000 (100,000 x 12% x 4/12) July 1: Notes Payable 100,000 Interest Payable 4,000 Cash 104,000 Landscape Corp. issues a $104,000, 4-month, zero-interest-bearing note on March 1 Present value (PV) of note and cash received is $100,000 March 1: Cash 100,000 Discount on Note Payable 4,000 Notes Payable 104,000 In effect: $100,000 borrowed for four months and $4,000 interest = $104,000 maturity value June 30: Interest Expense 4,000 Discount on Note Payable 4,000 July 1: Note Payable 104,000 Cash 104,000 3 Current Maturities of Long-Term Debt The portion of long-term debt maturing within 12 months from the balance sheet date is reported as a current liability Long-term debts should not be reported as current liabilities if: 1. they are retired by assets not classified as current assets 2. they are refinanced or retired by new issues of debt 3. they are converted into share capital Any liability due on demand, or due on demand within a year or operating cycle, is reported as a current liability Short-Term Debt Expected to be Refinanced Short-term debt may be excluded from current liabilities to the extent that contractual arrangements have been made for settlement from other than current assets. Both of the following criteria must be met to exclude amounts from current liabilities: 1. there is intent to refinance on a long-term basis, and 2. the entity demonstrates the ability to complete the refinancing The entitys ability to refinance is demonstrated if:...
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This note was uploaded on 10/13/2010 for the course ACTG 2P31 taught by Professor Pacharn,p during the Fall '10 term at Brock University, Canada.

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Lecture+Note+Chapter+13+with+answers - Chapter 13: Current...

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