Chapter 13: Current Liabilities & Contingencies Flashcards
What are the 3 characteristics of liabilities?
PROBABLE, FUTURE sacrifices of economic benefits
that arise from PRESENT obligations
resulting from PAST transactions
These are payable within 1 year and reported at maturity value.
current liabilities
What are the types of current liabilities?
Accounts payable Notes payable Accrued expenses Dividends payable Refundable deposits Sales taxes Income taxes payable Unearned revenue Gift cards Employee-related liabilities
A written promise to pay a sum of money on a specific date
May be non-interest bearing (no stated rate)
notes payable
Interest component for Notes payable is calculated…
face * annual rate * time to maturity
an expense that is incurred but paid later (there is no such thing as no money)
examples: interest or salaries
accrued expenses
Amounts owed to shareholders
Dividends in arrears (cummulative preferred stock) are not recorded as a current liability
dividends payable
These are recodred at declaration date
dividends payable
Money that does not belong to a leasing company
refundable deposits
Tax that does not belong to a retail store or other stores
sales taxes
Tax that is owed to the government
income taxes payable
Cash that is received in advance of providing a good or service
unearned revenue
These are recorded as unearned revenue at the time of sale
gift cards
Revenue for giftcards is recognized when…
- giftcard is used
- likelyhood of usage is considered remote (giftcard breakage)
Types of employee related liabilities
- Payroll deductions
- Compensated absences
- Employee bonuses
Type of employee related liability that includes withholding taxes and social security and annual plans such as… retirement plans contributions, insurance premiums, and union dues
payroll deductions
Type of employee related liability that includes vacations time and other paid time off
compensated absences
When are compensated absences recorded?
- Attributable to employees’ services already performed (have to work to earn vacation)
- The paid absence can be taken in a subsequent year (use the vacation hours or lose them)
- Payment is probable
- The amount can be reasonably estimated
A type of expense that is awarded to you
employee bonuses
- tied to performance (financial and nonfinancial )
- compensation expense in the period earned
What are the noncurrent vs current classifactions:
- current maturities of long-term debt (non current)
- long-term liabilities due on demand (long term that can be due tomorrow)
- short-term obligations expected to be refinanced
Short-term obligations expected to be refinanced can be classified as non current if
- intent to refinance
- ability to refinance
Uncertainty as to whether a loss really exists
loss contingencies
Resolved when some future event occurs
loss contingencies
Factors affecting accounting treatment in loss contingencies are:
- likelyhood of loss
- ability to estimate the loss
What is the likelyhood of accurrence in loss contingencies?
- probable: likely
- reasonable possible: remote but less likely
- remote: slight (unlikely)
What are the 3 presentations of contingencies?
- accure a liability if it is probable and estimable
- reasonably possible: disclosure note only
- remote: no action is required, except disclosures
Fore remote, no action is required except disclosures for the following items:
- unsuded lines of credit
- guarantees of indebtedness to others
- guaranteees to repurchase accounts receivable
What are the types of loss contingencies?
- warranties
- premiums
- litigation
- bad debts
- environmental liabilities
- self insurance
- asset retirement obligations
A type of loss contingency that is estimated using historical data
warranties
Dr: Warranty expense
Cr: Warrany liability
A type of loss contingencies that are incentives offered by the manufacturer to increase sales
premiums
Dr: Premium expense
Cr: Premium liability
Journal entry for litigation (if we get sued)
Dr: loss of litigation
Cr: liability litigation
Journal entry for bad debts
Dr: bad debt expense
Cr: allowane for bad debt
A type of loss contingency that takes long to resolve and is disclosed in the footnotes
environmental liabilities
A type of loss contingency where you just have to inclose that you are self insured
self insurance
A type of loss contingencies that are legal obligations associated with retirement of long-lived assets
asset retirement obligations
Dr: Long-lived asset
Cr: asset retirement obligation
What is the rolse of subsequent events?
- cause of the loss contingency must have occurred BEFORE year-end
- events occurring between year-end and the report date can affect account treatment
If unassorted claims are probable…
you evaluate it like other contingencies
If unassorted claims are not probable…
no action is required
What is an example of an unassorted claim?
IRS deficiency assessment
Discuss gain contingencies
- they are not recorded
- however we do disclose them in the footnotes
- which is a form of conservatism
