Chapter 10 Liabilities

Question 1

what are the 3 characteristics of liabilities

Answer 1

1. company has present obligation
2. resulting from a past transaction
3. settlement to be made in the future

Question 2

current liabilities

Answer 2

due within one year of bs date- AP, unearned revenue, wage payable

Question 3

non current liabilities

Answer 3

not expected to be settled within one year

bonds payable, notes payable, mortgage

Question 4

current portion of non-current debt

Answer 4

-part due within one year within the one year operating cycle - reported under current liabilities – classified balance sheet

Question 5

what are known liabilities

Answer 5

• little uncertainty - agreements, contracts, laws. -ap/unearned revenue/ payroll liabilities/ gst/ pst

Question 6

Accounts Payable

Answer 6

“trade payable” - amount due to third parties, occurs in normal business operation, NOT amounts due to owners.

Question 7

unearned revenue

Answer 7

liability to provide goods/ services in the future- short term usually

Question 8

payroll liabilities

Answer 8

amount owed to employees, and amount owed to RECEIVER GENERAL

Question 9

Payroll entries

Answer 9

dr payroll expense
     cr payroll liabilities
     cr ei payable
      cr cpp payable 
     cr tax payable
- amount owed to employees and amount of employees pay cheque thats going to receiver general

Dr ei expense(x1.4)
Dr cpp expense
cr ei payable(x1.4)
cr cpp payable

Question 10

GST

Answer 10

• 5%
• businesses pay on purchases: DR gst payable (because you get it back its only paid by consumers on final purchase of product)
• customer purchase something form you Cr gst payable- you must pay govt that portion
  entry when you pay payable dr gst payable
  cr cash

Question 11

PST

Answer 11

provincial sales tax- 7%, 
-collected and recorded as a PST payable 
- dr clash
        cr revenue
         cr pst payable
PST is NOT a receivable like GST
when you purchase equip
dr equip
    cr cash

Question 12

Current notes payable

Answer 12

interest with it.
may replace ap, bank loan, purchase assets
dr ap
    cr np
accrued interest: 
Dr interest expense
      cr interest payable 

then when paying the total amount after interest has been accrued
Dr np 
Dr interest expense
Dr interest payable 
    Cr cash

Question 13

Provisions

Answer 13

known obligation of uncertain amount, that can be reasonably estimated.
warranty, loyalty, income tax, property tax, gift cards

Question 14

loyalty programs

Answer 14

points rewards, encourage loyalty
-current liability you account for redemptions, an estimate is required because it is uncertain when points may be redeemed

Question 15

gift cards

Answer 15

UNEARNED REVENUE - only recognize as revenue when the redemption occurs, unredeemed gift cards are breakage

Question 16

warranty

Answer 16

obligation seller pays to fix or replace
the estimated expense and liability are recorded when revenue from sale is recorded ( matching principle)l
Dr estimated liability expense
    cr estimted warranty liability
when company pays for warranty
dr warranty liability
   cr cash / inventory

Question 17

income tax

Answer 17

corporation must estimate their income tax liability for financial statements
* make instalments on estimated liability
dr income tax payable ( asset account)
cr cash
Amount of tax not known until end of the year

Question 18

contigent liabilities

Answer 18

not probable but cannot be estimated, LAWSUIT

should never be recorded until they are actually realized and until then they are disclosed in financial statement notes