Chapter 8 - Solution Manual

Estimated costs to be incurred in connection with

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estimated costs to be incurred in connection with guaranteed servicing or repair of products already sold). 210-10-45-7 Section 470-10-45 includes guidance on various debt transactions that may result in current liability classification. These transactions are the following: a. Due on demand loan agreements b. Callable debt agreements c. Short-term obligations expected to be refinanced. > > Obligations in the Operating Cycle 210-10-45-8 As a balance sheet category, the classification of current liabilities generally includes obligations for items that have entered into the operating cycle, such as the following: a. Payables incurred in the acquisition of materials and supplies to be used in the production of goods or in providing services to be offered for sale. b. Collections received in advance of the delivery of goods or performance of services. Examples of such current liabilities are obligations resulting from advance collections on ticket sales, which will normally be liquidated in the ordinary course of business by the delivery of services. On the contrary, obligations representing long-term deferments of the delivery of goods or services would not be shown as current liabilities. Examples of the latter are the issuance of a long-term warranty or the advance receipt by a lessor of rental for the final period of a 10 year lease as a condition to execution of the lease agreement. c. Debts that arise from operations directly related to the operating cycle, such as accruals for wages, salaries, commissions, rentals, royalties, and income and other taxes. > > Other Liabilities 210-10-45-9 Other liabilities whose regular and ordinary liquidation is expected to occur within a relatively short period of time, usually 12 months, are also generally included, such as the following:
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156 a. Short-term debts arising from the acquisition of capital assets b. Serial maturities of long-term obligations c. Amounts required to be expended within one year under sinking fund provisions d. Agency obligations arising from the collection or acceptance of cash or other assets for the account of third persons. Loans accompanied by pledge of life insurance policies would be classified as current liabilities if, by their terms or by intent, they are to be repaid within 12 months. The pledging of life insurance policies does not affect the classification of the asset any more than does the pledging of receivables, inventories, real estate, or other assets as collateral for a short-term loan. However, when a loan on a life insurance policy is obtained from the insurance entity with the intent that it will not be paid but will be liquidated by deduction from the proceeds of the policy upon maturity or cancellation, the obligation shall be excluded from current liabilities.
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