Liabilities Flashcards
How does the “Gross Method” work for Accounts Payable (A/P)?
Purchases are shown at “Gross,” if the discount is taken
NOTE: This is considered a reduction of Cost of Sales (i.e. Cost of Goods Sold)
WHEN would an entity report a Liability for future compensated absences?
If all four of the following criteria are met:
(1) Payment is “reasonably estimatable”
(2) Payment is “Probable”
(3) Right to compensation for future absences “vests” (i.e. they earned it) or “accumulates”
(4) Future absences result from services already provided by the employees
Under the Liquidation Basis of Accounting, what amount should the company value their assets at if; IT is considered imminent that a company is no longer a going concern?
THE Amount expected to be generated upon liquidation
WHAT if a company can demonstrate both intent and ability to refinance short-term obligations on a long-term basis, Under GAAP?
THE obligations may be categorized as long-term on the Financial Statement (F/S)
WHAT value is used when an entity transfers an asset in a debt restructuring?
THE “Fair Value”
Would you record a gain on a modification of a loan term if the total payments to be made under the modified terms exceed the revised carrying value?
NO.
YOU would report a Gain; if the carrying value of the modified loan exceeded the total payments to be made under the modified terms
WHAT type of transactions would INCREASE an Escrow Liability account?
(1) Escrow receipts
(2) Interest earned
True or False.
Sick pay may be accrued if it accumulates or if it vests
FALSE.
Sick pay may be accrued if it accumulates but is required to be accrued ONLY if it vests
WHY? - Because it is assumed that sick pay will only be given when an employee is sick, which may or may not occur
WHAT are some examples of Current Liabilities?
(1) Accounts payable-trade
(2) Short-term borrowings
(3) Current (Short-term) portion of bank loan
WHAT items are compared WHEN there is a troubled debt restructuring involving ONLY a modification of loan terms?
THE sum of total future cash payments TO the Carrying Amount of the debt
WHEN is a Loss Contingency recognized?
WHEN it is both probable and estimable
NOTE: If it is only reasonably possible, it is disclosed but not accrued
True or False.
Contingency gains, including those that are probable and estimable, are accrued
FALSE.
Contingency gains, including those that are probable and estimable, are NOT accrued
NOTE: They may be disclosed as long as the disclosure does not imply a greater degree of likelihood of realization than actually exists
WHAT “basis” amount is used to calculate the limited amount an entity can refinance on a long-term basis?
THE “value of the collateral” NOT the original amount of the note
i.e. you would take whatever the limit percentage is and multiply it by the “Value of the Collateral”
Fill in the blank.
WHEN a ___A___ amount exists within a range, the reporting company must ___B___ the most likely amount and ___C___ that range.
A. Most likely
B. accrue
C. disclose
True or False.
Deferred tax liabilities arising from depreciation would be classified as a current liability.
FALSE.
Deferred tax liabilities arising from depreciation would be classified as a “noncurrent” liability
WHY? - Because they are related to long-term assets
True or False.
Interest is payable on the noninterest bearing note.
FALSE.
THERE is NO Interest Payable on a Noninterest Bearing Note; so no interest payable is recorded for it
True or False.
Dividends; whether dividends in arrears or dividends that are intended to be declared from current year income are reported as liabilities before they are declared.
False.
Dividends, whether dividends in arrears or dividends that are intended to be declared from current year income are NOT reported as liabilities until they are declared
Under IFRS, WHAT is the difference between a “Provision” and a “Contingency?”
Provision - A liability that is uncertain as to timing or amount
Contingency - A “Potential” obligation that is not recognized as a liability either because the outflow of resources is NOT probable or the amount is NOT “reasonably estimable”
Do Warranty costs increase or decrease an Accrued Warranty Liability account?
Decrease the account
Original Journal Entry would be:
Dr. Warranty expense
Cr. Estimated liability under warranties
After a Warrant Cost is Incurred the Journal Entry would be:
Dr. Estimated liability under warranties
Cr. Cash
HOW do you account for a Condition (i.e. damages) existing after the balance sheet (B/S) date, but prior to the issuance of the financial statements?
You would disclose but NOT accrue the condition on the company’s financial statements
i.e. This is considered a “TYPE II” Condition
