Solution_Chpt09 - Acct 2301 Solution _ chapter 09 Fall 09...

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Acct 2301 Solution _ chapter 09 Fall 09 1 1. Liabilities are obligations that result from past transactions that require future payment of assets or the future performance of services, that are definite in amount or are subject to reasonable estimation. A liability usually has a definite payment date known as the maturity or due date. A current liability is a short-term liability; that is, one that will be paid during the coming year or the current operating cycle of the business, whichever is longer. It is assumed that the current liability will be paid out of current assets. All other liabilities are defined as long-term liabilities. 5. Working capital is computed as total current assets minus total current liabilities. It is the amount of current assets that would remain if all current liabilities were paid, assuming no loss or gain on liquidation of those assets. 8. A deferred revenue (usually called unearned revenue or revenue collected in advance) is a revenue that has been collected in advance of being earned and recorded in the accounts by the entity. Because the amount already has been collected and the goods or services have not been provided, there is a liability to provide goods or services to the party who made the payment in advance. A typical example is the collection of rent on December 15 for one full month to January 15 when the accounting period ends on December 31. At the date of the collection of the rent the following entry usually is made: December 15: Cash (+A). ............................................................................ 4,000 Rent revenue (+R, +SE) . ................................................. 4,000 On the last day of the period, the following adjusting entry should be made to recognize the deferred revenue as a liability: December 31: Rent revenue (-R, -SE) . ....................................................... 2,000 Deferred rent revenue (or Rent revenue collected in advance) (+L). .............................................................. 2,000 The deferred rent revenue (credit) is reported as a liability on the balance sheet because two weeks’ occupancy is owed in the next period for which the lessee already has made payment. 12. The time value of money is another way to describe interest. Time value of money refers to the fact that a dollar received today is worth more than a dollar to be received at any later date because of interest. 13. Future value—The future value of a number of dollars is the amount that it will increase to in the future at i interest rate for n periods. The future value is the principal plus accumulated interest compounded each period. Present value—The present value of a number of dollars, to be received at some specified date in the future, is that amount discounted to the present at i interest rate for n periods. It is the inverse of future value. In compound discounting, the interest is subtracted rather than added as in compounding.
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This note was uploaded on 02/10/2012 for the course ACCT 2301 taught by Professor Li during the Fall '09 term at University of Central Florida.

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Solution_Chpt09 - Acct 2301 Solution _ chapter 09 Fall 09...

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