FAR-F5-M1-Payables and Accrued Liabilities Flashcards
Liabilities are classified as either current or non-current. What is the time limit for a liability to be considered current?
Current liabilities are expected to be paid within one year or one operating cycle.
What are accrued expenses?
These are expenses that are recognized in the books before they are paid for.
Is the following statement true or false? A liability that requires the periodic payment of interest should be classified as an accrued liability.
True. A liability that requires the periodic payment of interest should be classified as an accrued liability.
What is interest payable?
This is interest expense incurred that has not been paid in cash as of the balance sheet date.
A short term obligation may be excluded from current liabilities and included in non-current debt IF the company intends to refinance it on a long term basis and the intent is supported by the ability to do so evidenced by what factors?
- The actual refinancing prior to the issuance of the financial statements OR
- The existence of noncancelable financing agreement from a lender having financial resources to accomplish the refinancing.
Is the following statement true or false? Long term debt that matures within 1 year should be classified as a current liability UNLESS retirement is to be accompanied with other than current assets.
True. Long term debt that matures within 1 year should be classified as a current liability UNLESS retirement is to be accompanied with other than current assets.
What is an escrow liability and how are escrow receipts collected, real estate taxes paid, interest earned and maintenance fee charged to customers treated in relation to the escrow liability?
Escrow means any transaction in which one person delivers money to a third person to be held by that third person until the happening of a specified event, when it is then to be delivered by that third person to another agent.
Escrow liability natural Cr. balance
Beginning Balance
PLUS escrow receipts collected
LESS real estate taxes paid
PLUS Interest earned
LESS maintenance fee charged to customers
EQUALS Ending Balance
How is deferred compensation accounted for?
If the terms of deferred compensation arrangement attribute all or a portion of expected future benefits to a period of service greater than one year, the cost of the benefits should be recognized over that period of service.
So for example, if in year 1, a company hired an executive whose contract included the promise of payment of $100,000 in each years 6, 7 and 8 IF the executive is employed at the end of year 5, then the compensation expense is recorded as $100,000 / 5 years (the period of service) = $30,000 each year for 5 years.
When are dividends accrued for and what is the JE?
Dividends become a debt of the corporation IF the dividends are declared. If they dividends were not declared, then they should NOT be accrued for.
JE to record declaration of dividends:
Dr. Retained Earnings XXX
Cr. Dividends Payable (XXX)
Are sales taxes an expense of the company collecting the sales taxes from customers?
No. Sales taxes are NOT an expense of the company collecting sales taxes from customers.
A customer is considering buying a TV with a retail price of $2,000. The customer asks the store manager if the store will consider paying the sales tax so that the total cash payment is $2,000. The sales tax is 8%. The store manager agrees. What should the accountant credit in this transaction?
purchase price = retail price * (1+tax %)
$2,000 = Retail price * (1+0.08%)
retail price = $1,852.
JE to record the sale:
Dr. Cash $2,000
Cr. Sales Revenue ($1,852)
Cr. Sales Tax Payable ($148)
When are vacation accruals recorded?
Vacation accruals are recorded in the year earned IF ALL of the following are met:
1. the employer is obligated to compensate due to services already rendered by employees.
2. the obligations relate to rights that vest or accumulate
3. The compensation payment is probable.
4. The payment amount can be reasonably estimated.
Accrued compensated balances generally include vacation pay. Does it also include sick pay?
No. Accrued compensation balances generally includes vacation pay but not sick pay because sick pay does not vest.
Is the following statement true or false? Vacation liability must be recorded for employees who have earned vacation where rights accumulate and they have not taken the vacation time at year end. Vacation expense is recorded to reflect the amount of vacation earned for a given period, regardless of whether it was taken or not.
True. Vacation liability must be recorded for employees who have earned vacation where rights accumulate and they have not taken the vacation time at year end. Vacation expense is recorded to reflect the amount of vacation earned for a given period, regardless of whether it was taken or not.
What are exit and disposal activities?
Exit and disposal activities refers to a situation when a company is going to lay off employees and determine the liabilities for termination benefits. The liability is recognized on the communication date at fair value or if its in the distant future, then it would be discounted to present value.
