ACCT3111-Current%20Liabilities%20and%20Contingencies

ACCT3111-Current%20Liabilities%20and%20Contingencies -...

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Chapter 14 Current Liabilities and Contingencies Objectives 1. Explain the characteristics of a liability. 2. Account for compensated absences. 3. Account for warranty costs. 4. Explain the terms “probable,” “reasonably possible,” and “remote” related to contingencies. 5. Record and report a loss contingency. 6. Disclose a gain contingency. (1) Conceptual Overview of Liabilities (1.1) Liabilities are probable future sacrifices of economic benefits arising from present obligations of a company to transfer assets or provide services to other entities in the future as a result of past transactions or events. Current Liabilities Current liabilities are obligations whose liquidation is expected to require the use of existing current assets or the creation of other current liabilities within one year or an operating cycle, whichever is longer. (1.2) Three Essential Characteristics of a Liability 1. It involves a present duty or responsibility of the company to one or more entities that will be settled by the probable future transfer or use of assets at a specified or determinable date, on occurrence of a specific event, or on demand. 2. The duty or responsibility obligates the company, leaving it little or no discretion to avoid the future sacrifice. 3. The transaction or other event obligating the company has already happened. (1.3) Primary Liability Issues 1. Identification of liabilities the detection of a company’s obligations. 2. Measurement or valuation of the liabilities and the related expense— the determination of an amount to attach to each obligation and to match as an expense against revenues. 3. Reporting o n the financial statements— the specific disclosures in both the 1
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company’s financial statements and the related notes. (1.4) Types of Current Liabilities Having Contractual Amount Accrued items Unearned items Financial Liabilities Notes payable Currently maturing portion of long-term debt Dividends payable Advances and refundable deposits Amount Depends on Operations Sales (use) taxes Payroll taxes Income taxes Bonuses Amount Must Be Estimated Property taxes Warranties Premiums and coupons Other contingencies (2) Current Liabilities Having a Contractual Amount Def: Trade accounts payable arise from the purchase of inventory, supplies, or services on an open charge-account basis. (2.1) Note Payable:
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ACCT3111-Current%20Liabilities%20and%20Contingencies -...

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