Chapter 13 Power Point Notes

Question 1

liability

Answer 1

probable future economic sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of a past transactions or events

Question 2

Operating cycle period

Answer 2

time from the acquisition of “raw materials” to final cash realizations resulting from sales
Wholesalers and retailers likely < 1 year
Some manufacturing > 1 year (long production process; airplanes)

Question 3

Current Ratio

Answer 3

Current Assets/Current Liabilities

Question 4

Quick Ratio or Acid Test

Answer 4

Quick Assets/Current Liabilities

quick assets = cash + marketable securities + net receivables

Question 5

Types of Current Liabilities

Answer 5

Accounts Payable
Current Notes Payable / Commercial Paper
Current Maturities of Long-Term Debt
Dividends Payable
Unearned Revenues
Sales Taxes Payable
Income Taxes Payable
Employee-related Liabilities

Question 6

Notes Payable

Answer 6

if it says “note” it is a N/P

Question 7

Exclude from “current” if

Answer 7

The company has both the…
Intent to refinance to long-term
Ability to refinance to long-term

Question 8

Sales Tax Payable

Answer 8

Dr. Cash 6,480
Cr. Sales 6,000
Cr. Sales Taxes Payable 480

Question 9

Accrue a liability if:

Answer 9

1. The obligation relates to employee services already rendered.
2. The obligation relates to rights that vest or accumulate
   Vested rights: Employer must make payments even if employee terminates employment
   Accumulated rights: Employees can carry rights forward to future periods if not used in period when earned.
3. Payment of the compensation is probable
4. The amount can be reasonably estimated

Question 10

How do we disclose contingent losses?

Answer 10

It depends…
 Likelihood?
 Estimability?

Question 11

Probable and Reasonably Estimated:

Contingent Losses

Answer 11

Record the liability

Question 12

Reasonably Possible and Reasonably Estimated

Contingent Losses

Answer 12

Disclose Relevant facts

Question 13

Remote and Reasonably Estimated

Contingent Losses

Answer 13

Ignore

Question 14

Not Estimable and probable

Contingent Losses

Answer 14

Disclose Relevant Facts

Question 15

Reasonably Possible and not estimable

Answer 15

Disclose relevant facts

Question 16

Remote and Not Estimable

Answer 16

Ignore

Question 17

Long-Term Liabilities

Answer 17

Liabilities that are not payable within a year or the operating cycle of the business, whichever is longer
Bonds Payable
Long-Term Notes Payable
Mortgages Payable
Pension Liabilities
Lease Obligations