Must therefore be examined closely and compared with

Info icon This preview shows pages 9–11. Sign up to view the full content.

View Full Document Right Arrow Icon
must, therefore, be examined closely and compared with sales levels. Any deviations from historical relation of the warranty liability to sales, or from levels reported by competin should be scrutinized.
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Module 7 I Liability Recognition and Nonowner Financing 7-10 The solution is on page 7-47. ID-MODULE REVIEW 2 _ sume that Verizon's employees worked during the current month and earned $10,000 in wages at Verizonwill not pay until the first of next month. Must Verizonrecognize any wages liability and expensefor the current month? Explain. Use the financial statement effects template to show the effect f this accrual. ent Nonoperating Liabilities nt nonoperating liabilities include short-term bank loans, accrued interest on those loans, me current maturities of long-term debt. Companies generally try to structure their financ- _ 50 that debt service requirements (payments) coincide with the cash inflows from the assets C:z~xi. This means that current assets are usually financed with current liabilities, and that .:-term assets are financed with long-term liabilities (and equity). To illustrate, assume that a seasonal company's investment in current assets tends to fluctuate g the year as depicted in the graphic below: L02 Analyze and explain the accounting for current and long- term nonoperating liabilities. rrent Assets 000 ~ ~ ~ - ... ~ ,.. _41 ~ - - - - - - - -- - - - - / - - - - - - } Seasonal current assets } Permanent current assets ,500 ,000 S500 $0 Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. ompany does most of its selling in the summer months. More inventory is purchased and actured in the early spring than at any other time of the year. High summer sales give rise ounts receivable that are higher than normal during the fall. The company's working capital at the height of the selling season and is lowest as the business slows in the off-season. is a permanent level of working capital required for this business (about $750), and a al component (maximum of about $1,000). Different businesses exhibit different patterns ir working capital requirements, but many have both permanent and seasonal components. The existence of permanent and seasonal current operating assets often requires that financing s also have permanent and seasonal components. Consider again the company depicted in graphic above. Aportion of the company's assets is in inventories that are financed, in part, with tspayable andaccruals.Thus, weexpectthat current operating liabilities alsoexhibitaseasonal nent that fluctuates with the level of operations. These payabJes are generally non-interest- g and, thus, provide low-cost financing that should be used to the greatest extent possible. - tional financing needs are covered by short-term interest-bearing debt. This section focuses on current nonoperating liabilities, which include short-term debt, cur- maturities of long-term liabilities, and accrued interest expenses.
Image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern