Chapter 13 Questions

Chapter 13 Questions - Emir Ibrahimovic ACC311-01 Chapter...

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Emir Ibrahimovic ACC311-01 1/13/12 Chapter 13 Question 13-1 What are the essential characteristics of liabilities for purposes of financial reporting? Most liabilities obligate the debtor to pay cash at a specified time and result from legally enforceable agreements. Also a liability is a present obligation to sacrifice assets in the future because of something that already has occurred. They result from past transactions and they are also probable in future sacrifices of economic benefits. 13-2 What distinguishes current liabilities from long-term liabilities? Current liabilities are payable within one year or one operating cycle, whichever is longer. Also they are reported at their maturity amounts and not at present value. On the other hand long term liabilities are payable for longer than a year and are reported at present value. 13-4 Bank loans often are arranged under existing lines of credit. What is a line of credit? How does a noncommitted line of credit differ from a committed line of credit. A line of credit allows a company to borrow cash without having to follow formal loan procedures and paperwork. A noncommited line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork. A committed line of credit is a more formal agreement that usually requires the firm to pay a commitment fee to the bank. 13-6 How does commercial paper differ from a bank loan? Why is the interest rate often less for commercial paper? Commercial paper is when large companies rent to other large firms. Usually their interest rate is a lot lower than a bank. Commercial paper must mature between 30 and 270 days and it also has a minimum denomination of $25,000. 13-8 Under what conditions should an employer accrue an expense and the related liability for employees’ compensation for future absences? How do company custom and practice affect the accrual decision? If the obligation is attributable to employees services already performed, If the benefit can be accumulated over time or can be taken in a later year, if the payment is probable, and if the amount can be reasonably estimated. The paid absence can be taken in a later
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This note was uploaded on 02/22/2012 for the course ACC 311 taught by Professor Crampton during the Winter '11 term at Jacksonville College.

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Chapter 13 Questions - Emir Ibrahimovic ACC311-01 Chapter...

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