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by: Judge Johnston II


Judge Johnston II
Virginia Commonwealth University
GPA 3.54

Alisa Brink

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About this Document

Alisa Brink
Class Notes
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This 5 page Class Notes was uploaded by Judge Johnston II on Wednesday October 28, 2015. The Class Notes belongs to ACCT 304 at Virginia Commonwealth University taught by Alisa Brink in Fall. Since its upload, it has received 15 views. For similar materials see /class/230677/acct-304-virginia-commonwealth-university in Accounting at Virginia Commonwealth University.

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Date Created: 10/28/15
DEFINITION OF LIABILITIES Probable Future Sacri ces of Economic Bene ts arising from current obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events CURRENT LIABILITIES Obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets or the creation of other current liabilities EX S AP NP Current maturities of longterm debt shortterm obligations expected to be refinanced dividends payable customer advances amp deposits unearned revenues SalesIncome taxes payable amp EmployeeRelated Liabilities NOTES PAYABLE l InterestBearing Note a Record cash received Cash 100000 Notes Payable 100000 b Endofyear adjusting entry Interest Expense 2000 Interest Payable 2000 c Payment of notes amp accrued interest Notes Payable 100000 Interest Payable 2000 Cash 102000 J ZeroInterest Bearing Note of 102000 PV 100000 Record Transaction a Cash 100000 Discount on NP 2000 Notes Payable 102000 6 Adjusting entry to recognize interest expense Interest Expense 2000 Discount on NP 2000 0 Pay the note on maturity Notes Payable 102000 Cash 102000 CURRENT MATURITIES OF LONGTERM DEBT Portion of bonds mortgage notes amp other longterm debts that mature within the next fiscal year Exclude longterm debts maturing currently if they are to be A Retired by assets accumulated that have not been shown as current assets J Refinanced or retired from the proceeds of a new debt issue OR U Converted into capital stock ShortTerm obligations are debts scheduled to mature within one year after the date of a company s BS or within its operating cycle whichever is longer SHORTTERM OBLIGATIONS EXPECTED TO BE REFINANCED Exclud l 2 e from current liabilities if both of the following conditions are met Must intend to re nance the obligation on a long term basis the company intends to re nance the ST obligation so that it will not require the use of working capital Must demonstrate an ability to re nance by either a Actually re nancing the ST obligation by issuing a LT obligation or equity securities stock after the date of the B S but before it is issued OR b Entering into a nancing agreement that clearly allows the company to re nance the debt on a LT basis on terms that are readily determinable DIVIDENDS PAYABLE Amount owed by a corporation to its stockholders as a result of board of direc tors authorization O 9 Generally paid within three months Undeclared dividends on cumulative preferred stock not recognized as a liability bc preferred dividends in a1rears money that s owed amp should have been paid earlier are not an obligation until the board of directors authorizes the payment Dividends payable in the form of additional shares of stock are not recognized as a liability Reported in equity CUSTOMER ADVANCES amp DEPOSITS Returnable cash deposits received from customers and employees They may be classi ed as current or long term liabilities depending on the time between the date of the deposit amp the termination of the relationship that required the deposit EMPLOYEERELATED LIABILITIES l payroll deductions a Taxes Social Security Taxes amp Income Tax Withholding Employer reports these amounts as liabilities until remitted 2 Compensated Absences Companies should accrue a liability for the cost of compensation for future absences if all of the following conditions exist a The employer s obligation is attributable to employees services already rendered b The obligation relates to rights that vest 0r accumulate c Payment of the compensation is probable d The amount can be reasonably estimated Vested rights exist when an employer has an obligation to make payment to an employee even after ring the employee Thus vested rights are not contingent on an employee s future service Accumulated rights are those that employees can carry forward to future periods if not used in the period in which earned 3 ProfitSharing amp Bonus Plans Payments to certain or all employees in addition to their regular salaries or wages a Bonuses paid are an operating expense b Unpaid bonuses should be reported as a current liability CONTINGENCIES Companies are often involved in situations where uncertainty exists about whether an obligation to transfer cash or other assets has arisen amp OR the amount that will be required to settle the obligation Broadly these situations are called contingencies A contingency is an existing condition situation or set of circumstances involving uncertainty as to possible gain gain contingency or loss loss contingency to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur GAIN CONTINGENCIES are claims or rights to receive assets or have a liability reduced whose existence is uncertain but which may become valid eventually The typical gain contingencies are 1 Possible receipts of monies from gifts donations and bonuses 2 Possible refunds from the government in tax disputes 3 Pending court cases with a probable favorable outcome 4 Tax loss carry forwards Companies follow a conservative policy in this area Except for tax loss carryforwards they do not record gain contingencies A company discloses gain contingencies in the notes ONLY When a high probability exists for realizing them getting the receipt LOS S CONTINGENCIES LIKELIHOOD OF LOSS When a loss contingency exists the likelihood that the future event or events will confirm the incurrence of a liability can range from probable to remote PROBABLE The future events are likely to occur REASONABLE PROBABLE Remote lt The chance of the future events occurring lt Likely REMOTE The chance of the future events occurring is slight Companies should accrue an estimated loss from a loss contingency by a charge to expense amp a liability recorded only if BOTH of the following conditions are met 1 Info available before the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements 2 The amount of the loss can be reasonable estimated


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