Chapter 9: reporting and interpreting current liabilities

Question 1

when does a company have liquidity?

Answer 1

when it has the ability to pay for its current obligations

Question 2

what is working capital

Answer 2

another way of measuring if a company has liquidity

current assets - current liabilities

has a significant impact on health and profitability of a company

Question 3

what is the quick ratio

Answer 3

compares most liquid current assets to current liabilities

quick assets / current liabilities

higher ratio is gyuer, but not too high

Question 4

if you pay a current liability fully with cash, what happens to the quick ratio?

Answer 4

it would decrease because the relative decrease of current liabilities is more than the relative decrease of quick assets

Question 5

are all liabilities recorded as they occur during the accounting period?

Answer 5

nah boy

for example, sometimes when you gotta adjust journal entries at the end (like recognizes salaries expense and shit)

Question 6

can liabilities be estimated? if so, must you record them?

Answer 6

yes they can, and yes you must record them

recorded as expenses first

estimated according to past experiences

record them with adjusting entries

Question 7

so most companies produce their goods and services?

Answer 7

naaah boy

most companies buy them from other companies on credit

Question 8

what is the meaning of accounts payable turnover ratio and the formula?

Answer 8

accounts payable turnover ratio =

costs of sales / average accounts payable

it is a measure of how management is efficient to repaying suppliers

how quickly can management can repay their accounts payable

average age of payables is 365 / accounts payable turnover ratio

a higher ratio is gyuer

Question 9

what are accrued liabilities

Answer 9

expenses that have been incurred during an accounting period but have not yet been paid

Question 10

are income taxes the only taxes to pay?

Answer 10

nah bruh

Question 11

where do the recordings of taxes other than income tax go to?

Answer 11

they recorded as costs of sales

in the end, it just means higher price for consumers

they are technically liabilities that the company pays to government, hence they don’t make revenue out of the increase of the price

Question 12

must there also be an income deduction recorded from employees’ salaries? if so, how is it recorded?

Answer 12

yes, there is a deduction

it must be recorded as a liability

Question 13

what is time value of money?

Answer 13

interest that is associated with the use of money over time

the longer the money is held, the larger the amount of interest expense

Question 14

deferred revenues

Answer 14

unearned revenues

ex: gift cards

Question 15

are deferred revenues short term or long term obligations

Answer 15

it depends of when the services must be rendered

Question 16

what is a provision

Answer 16

appears when the timing or amount of a certain liability due is uncertain

Question 17

when must provisions be recognized?

Answer 17

1. an entity has a present obligation as a result of a past event
2. it is probable the cash or other assets will be required to settle the obligation
3. a reliable estimate can be made of the amount of the obligation

Question 18

what are contingent liabilities?

Answer 18

possible liabilities that arise form past events

their existence will be confirmed only by the occurence or non occurence of on or more uncertain future events not entirely in the company’s control

may or may not be recorded as a liability

ex: lawsuits, environmental problems, tax disputes

Question 19

wether a situation produces a provision or a contingent liability relates to what two factors?

Answer 19

the probability of a future economic sacrifice

the ability fo management to estimate the amount of the liability reliably

Question 20

what happens when the amount of a liability can be estimated reliably?

Answer 20

a provision must be recognized

disclosure of the provision is required

Question 21

what happens when the amount of a liability can’t be estimated reliably?

Answer 21

no provision shall be recognized

disclosure is required for the contingency

Question 22

what happens when there is either a present or possible obligation that may, but probably will not, require an outflow of resources?

Answer 22

no provision shall be recognized

disclosure is required for the contingency

Question 23

what happens when there is either a present or possible obligation that has a lot of chances of not happening

Answer 23

no provision shall be recognized

disclosure is not required

Question 24

why can too much working capital be trash

Answer 24

too many unproductive assets can bring about addition useless costs

Question 25

how does working capital have a direct impact on cash flows from operating activities?

Answer 25

many working capital accounts have a direct relationship with income-producing activities

Question 26

what are the permanent differences in recording taxes?

Answer 26

the permanent differences between the IFRS and Income Tax Act

Question 27

If it is the CCA tax that’s higher than the IFRS, then what will be the resulting deferred income tax?

Answer 27

a deferred income tax asset

our asset is the difference between the CCA nad IFRS

Question 28

If it is the IFRS tax that’s higher than the CCA, then what will be the resulting deferred income tax?

Answer 28

a deferred income tac liability

we gonna owe money to the government and shit

we owe the difference of the IFRS and CCA

Question 29

what are deferred income taxes

Answer 29

difference between income tax expense and income taxes payable

happen because of differences between IFRS and Income tax Act

Question 30

what is the most common source of temporary tax differences?

Answer 30

depreciation expense and capital cost allowance (CCA)

Question 31

what is present value

Answer 31

current cash equivalent of an amount to be received in the future

can also be a future amount discounted for companied interest

Question 32

why is money earned today (or invested) worth more than in one year

Answer 32

because of interest earned

Question 33

future value problems

Answer 33

you know the amount of cash flow today but have to determine the amount flowing in the future

Question 34

future value

Answer 34

sum to which an amount will increase because of compound interest

Question 35

what is the present value of a single amount?

Answer 35

the value of cash that you’re willing to accept today instead of an amount due in the future

Question 36

what is an annuity

Answer 36

series of consecutive payments characterized by:

1. an equal dollar amount each interest period
2. interest periods of equal length
3. equal interest rate each period

Question 37

what is the present value of an annuity?

Answer 37

the value now of an equal amount of series to be received (or paid) each period