SU9 - Payables and Taxes

Question 1

Define what a contract liabilty is, and what an alternative accounting term for it is.

Answer 1

A contract liability is an obligation to transfer goods or services to a customer for which the consideration already has been received from the customer.

Alternative descriptions of a contract liability, such as deferred revenue, may be used in the statement of financial position.

Question 2

Under GAAP, which approach is used to determine income tax expense?

Answer 2

Asset and Liabilty Approach

Question 3

The types of assets that qualify for interest capitalization are

Answer 3

Assets that are constructed for the reporting entity’s own use.

Interest should be capitalized for (1) assets constructed or otherwise produced for an entity’s own use, including those constructed or produced by others; (2) assets intended for sale or lease that are constructed or produced as discrete projects (e.g., ships); and (3) certain equity-based investments. An asset constructed for an entity’s own use qualifies for capitalization of interest if (1) relevant expenditures have been made, (2) activities necessary to prepare the asset for its intended use are in progress, and (3) interest is being incurred. The investee must have activities in progress necessary to commence its planned principal operations and be expending funds to obtain qualifying assets for its operations.