Chapter 9- Current Liabilities

Question 1

Characteristics of a liability

Answer 1

• present obligation of the entity
• company expects to settle (within a year) it through outflow of resources that have economic benefit
• obligation results from event that has already happened

Question 2

Valuation of current liabilities

Answer 2

reflected on F.P at fair value or at the present value of the payments required to settle

Question 3

Bank Indebtedness (Line of Credit)

Answer 3

when companies deal with temporary cash shortages, first current liability bc it has to be repaid with cash deposits

Question 4

Short term Loans (Working Capital loans)

Answer 4

short term loan that is secured when lender gives funds based on by accounts receivable or inventory, guaranteed repayment of debt

Question 5

Current Portion of Long Term Debt

Answer 5

long term loans that require to repay a portion of the loan principal each year or blended payments each month

Question 6

Loan payments

Answer 6

an interest payment, principal payment (reducing the loan’s balance)

Question 7

Current liabilities w lenders

Answer 7

bank indebtedness, short term loans, current portion of long-term debt

Question 8

Current liabilities w suppliers

Answer 8

Accounts Payable; when company’s buy on credit they have 30 days to be paid

Question 9

Current liabilities w customers

Answer 9

unearned revenue, gift cards, customer loyalty, sales return provision, warranty provision

Question 10

Unearned revenue/ Gift cards

Answer 10

• company receives payment in advance for goods or services

- accounted for by paying in advance/ deposit

Question 11

Types of warranties

Answer 11

• assurance type; assure performance, protects defects, estimated cost
• service type; assurance beyond basic product performance, represents service obligation

Question 12

Current liabilities w employees

Answer 12

wages payable (work before you get paid), CPP payable, EI payable, employee income tax payable

Question 13

Current liabilities w government

Answer 13

corporate tax returns, monthly income tax payments

- outstanding taxes due are a liability

Question 14

Current liabilities w shareholders

Answer 14

dividends declared but not yet paid; dividends payable

Question 15

Accounts payable turnover ratio and average payment period…

Answer 15

asses change in the supplier payment portion of the cash to cash cycle from one period to another