Accrued Liabilities and Payables

Question 1

What is an accrued liability?

Answer 1

When an expense is incurred in the past but not yet paid, the company will record an accrued liability.

Question 2

On March 31, Yr 3 company received a utility bill for $936 covering service period March 1 to March 25 with payment due date of April 5. What will be the JE on March 31, yr 3? 936 will be accrued liability here. (NI, RE and E will go down and Liability will go up due to AP)

Answer 2

Utility Expense 936
Accounts Payable 936

Question 3

Also on March 31, the company prepaid rent for $685, the monthly rental fee covering the period April 1 to April 30.

Answer 3

Prepaid Rent 685
Cash 685

Question 4

Zero interest-bearing note

Answer 4

Deep discount - if no market rate is given, take the face amount subtract the amount received. This will be recorded as interest expense and it will be amortized over bond life.

Question 5

FV of ARO liability * Credit Adjusted Risk Free Rate

Question 6

Interest expense unless you are a bank is a NON-operating expense in IS. Interest payable in SOCF is an operating activity (if on debt) coz it’s legally required on DEBTS.

Answer 6

Need to be checked for SOCF

Question 7

What is an Unearned Revenue? (synonyms - deferred credit, deferred revenue, refundable deposit)

Answer 7

It is a liability. It results when cash is received in advance of providing any product or services. E.g. Downpayment (e.g. 30% of total contract price)received for installation work yet to be performed is an unearned revenue

Question 8

Salary expense is incurred when employees perform services regardless of when they are paid

Answer 8

True. L is recorded (i.e. accrued salaries payable) for salaries earned by employees but not yet paid to them.

Question 9

JE to record accrued salaries at Dec 31, Yr 1

Answer 9

Salaries Expense XXX

          Accrued Salaries payable    XXX

Question 10

Deferred compensation

Answer 10

e.g. pension

Question 11

Joe Co. sold $10,000 of merchandise to a supplier in exchange for a noninterest-bearing note due in 3 years. The market rate for a note of this type is 10%. When recording the journal entry to issue the note, Joe co. should use which of the following accounts?

Answer 11

Noninterest-bearing Notes receivable in exchange for merchandise sold

Notes receivable (Face amount) XXX
Discount on notes receivable XXX
Sales Revenue XXX

Year End Adjusting Entry

Discount on Notes Receivable XXX
Interest Revenue XXX

Question 12

Dividends in arrears on cumulative preferred stock are NOT a ____________

Answer 12

Liability but must be disclosed in the notes to the financial statements

Question 13

Preference order when paying a declared dividend

Answer 13

1. Dividends in arrears (Cumulative preferred stock-if preferred stock is cumulative, any undeclared annual dividend not paid in the previous year accumulates dividends in arrears and is paid in the future when declared)
2. CY Preferred shareholders’ annual dividend
3. CY declared dividend - Common shareholders (A dividend must be declared to be paid)

Question 14

ARO

Answer 14

Name for cleaning your mess

Question 15

ARO - initially recorded as LIABILITY @ FV, use sum of present value of Future cash flows if FV is not available

Answer 15

Long-lived asset XXX
ARO Liability XXX

Question 16

Each year, ARO liability is increased based on the discount rate. This increase is reported as ACCRETION EXPENSE (similar to accounting discount).

Answer 16

Accretion - growth of the liability over time. When the liability is satisfied, it is reported at its total nondiscounted value. Each year, the net BV of the long-lived asset declines through depreciation or depletion.

Accretion expense XXXX
ARO XXXX

Question 17

PV factor

Answer 17

1/(1.06)n where n=periods

Question 18

Accretion expense

Answer 18

Take credit adjusted risk free rate

Question 19

The change in the allowance for credit losses does not impact the calculation of cash sales.

Answer 19

True

Question 20

Costs to fulfill a contract that benefit a period of less than one year are ______________in the period in which they are incurred

Answer 20

expensed e.g. (11 month contract)

Question 21

Greatest volume and level of activity ___________

Answer 21

Principal market

Question 22

The market that maximizes the price received for the asset ______

Answer 22

Most advantageous market

Question 23

Int Bearing notes, int expense =

Answer 23

Principal RateTime Outstanding