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
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.
(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.
Credit balances in customers' accounts arising from returns and allowances after collection in full
(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).
Deposits made by customers who have ordered goods.
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.