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Current liability and contingency part note

by: Jinghui Cai

Current liability and contingency part note ACC 302

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Jinghui Cai

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Accounting problem related to current liability, refinance, employee-related debt, contingency, etc.
Intermediate Accounting II
Samuel J. Bass
Class Notes
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This 5 page Class Notes was uploaded by Jinghui Cai on Wednesday March 9, 2016. The Class Notes belongs to ACC 302 at Missouri State University taught by Samuel J. Bass in Spring 2016. Since its upload, it has received 22 views. For similar materials see Intermediate Accounting II in Accounting at Missouri State University.


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Date Created: 03/09/16
1.  Describe the nature, type, and valuation of current  liabilities. Current Asset: Expected convert into cash Current Liability: Probable future sacrifices  A/P  N/P- Written promises to pay a certain sum of money on a specified future date. Interest-bearing Sign Note Recognize int. exp. Int. Payment Zero-int.-bearing : issued money 直直直直直直直直 notes payable/直discount 直直 premium Discount on Notes Payable is a contra account to Notes Payable Discount on notes payable Represents the cost of borrowing. ( Debited to interest expense over the life of the note.)  Current Maturities of Long-Term Debt <Portion of bonds, mortgage notes, and other long­term indebtedness that matures within the next fiscal year.> Exclude:  Retired by assets accumulated that have not been shown as current assets,  Refinanced, or retired from the proceeds of a new debt issue, or  Converted into capital stock. 2. Refinance  直直/直直直直  Dividends Payable  Customer Advances and Deposits <Returnable cash deposits received from customers and employees may be classified as current or long-term liabilities>  Unearned revenue  Sales tax payable Separate revenue and tax at evey sale Do not separate < Credit both amount in total in the sales revenue account>  Income tax payable 3. 4. 5. 3. Employee-related Liability  Payroll deductions - Income tax withholding 6. 7. - Salaries and wages paid and the -Records the employers payroll taxes employee payroll deductions 9. 10. 11. 12. 13.< federal FUTA and State SUTA is paid by employer so only report on employer’s payrall tax expense. FICA is paid by both employee and employer so report on both salaries and payroll tax.  Compensated absences. 14. *直直直 2014 直 480 直 540  Bonuses   Bonuses paid are an operating expense. 15. Unpaid bonuses should be reported as a current liability. 16. 4. Contingencies 17.  Gain contigencies Gain contingencies are not recorded. 18. Disclosed only if probability of receipt is high.  Loss contingencies 19. 20. 21.  Common loss contingencies 1. Litigation, claims, and assessments. Time period 22. Probability 23. reasonable estimate 2. Guarantee and warranty costs. 24. Cash-Basis Method: Expense warranty costs as incurred 25. Accrual-Basis Method: Charge warranty costs to operating expense in the year of sale.<expense warranty approach> 26. Warranty cost charges to sales 27. Warranty Expense 16,000 28. Warranty Liability 16,000 29. Recognition of warranty cost 30. Warranty Liability 16,000 31. Cash, Inventory, Accrued Payroll 16,000 3. Premiums and coupons. 32. Cost of premium/coupon 33. Inventory of Premiums 15,000 34. Cash 15,000 35. Record sales 36. Cash 240,000 37. Sales Revenue 240,000 38. Actual redeemtion 39. Cash [(60,000 ÷ 10) x $0.25] 1,500 40. Premium Expense 3,000 41. Inventory of Premiums 4,500 42. Estimated liability for outstanding premium offers 43. Premium Expense 6,000 44. Premium Liability 6,000 4. Environmental liabilities  ARO : A company must recognize an asset retirement obligation (ARO) when it has an existing legal obligation associated with the retirement of a long-lived asset 45. <ARO’s should be recorded as fair value.> 46. Step1: Record the present value(fair value) of future cost as liability 47. Drilling Platform 620,920 48. Asset Retirement Obligation 620,920 49. 50. 51. Step2: allocates the asset retirement cost to expense each year 52. Depreciation Expense ($620,920 ÷ 5) 124,184 53. Accumulated Depreciation 124,184 54. Step 3: records interest expense and the related increase in the asset retirement obligation 55. Interest Expense ($620,092 x 10%) 62,092 56. Asset Retirement Obligation 62,092 57. Step 4: Dismantle the platform at a contract price of $995,000 at the end of the use life 58. Asset Retirement Obligation 1,000,000 59. Gain on Settlement of ARO 5,000 60. Cash 995,000 5. Present and analyze liability and contingency 61. Current liability - Usually reported at their full maturity value - Companies may list the accounts in  Order of maturity,  Descending order of amount, or  Order of liquidation preference 62. Presentation of Contingencies - Disclosure should include  Nature of the contingency.  An estimate of the possible loss or range of loss or a statement that an estimate cannot be made. 63. Analysis - Current ratio - Acid-test ratio


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