Liabilities Ch13 Accounting

is associated with a note payable when interest is included in the obligation’s face value. (Yes.  The discount on notes payable account is associated with a note payable when interest is included in the obligation’s face value.)

A minimum structure is required. Several items have to be disclosed separately on the face of the balance sheet or within the notes.

Current liabilities are defined as: “Debts due to be paid with cash or with goods and services within one year, or within the entity’s operating cycle if the cycle is longer than a year.” (Hongren, Harrison & Oliver, 2012) These liabilities fit into three categories: Current liabilities of known amount; current liabilities that must be estimated; and contingent liabilities. According to the matching principle of accounting, expenses and revenues need to be reported during the same period that they are earned. This can be difficult if the exact amounts are not known. This is the purpose behind estimated and contingent liabilities. In order to provide accurate financial reports companies must record revenues and

Again, this is a balance sheet account. See below for more information concerning this account.

31.  Current liabilities are amounts that must be paid within a short period of time, usually less than a year.  TRUE

A current liability is defined as a liability that must be paid within one accounting period.

Interest is stated in terms of a percentage rate to be applied to the face value of the loan.

* Statement of net assets (Balance sheet) presentation required classification of current and non-current of assets and liabilities. Equity section presents: Net Assets Invested in Capital Assets, Care Organizations Net of Related Debt, Restricted Net Assets, and Unrestricted Net Assets.

The similarity is notes payable also “have fixed maturity dates and carry either a stated or implicit interest rate” (Kieso, Weygandt, & Warfield, 2007, p. 685). The difference is notes payable are not easily tradable. A company reports notes payable in a similar fashion as it does bonds. In reporting a note payable a company records the note at its face value of its future interest and principal cash flows. The company amortizes any discount or premium of a note over its life. If a note has no-bearing interest rate the company should report the difference between the face value and the cash received as a discount on the note. This amount one amortizes over the life of the note to interest expense.

While current liabilities are liabilities which are to be settled within one accounting period or 12 months.

The following financial data illustrates the firm’s short-term ability to pay maturing obligations and to meet unexpected needs for cash:

Classify the following as long term or current liabilities: Accounts Payable, Accrued Liabilities, Note Payable with total balance due in 5 years, Mortgage Loan with payments made monthly over 5 years.

Require officers who have borrowed money from the company to repay the amounts owed at December 31. This would convert into cash the “notes receivable from officers,” which now appear in the balance sheet as noncurrent assets. The loans could be renewed immediately after year-end.

Note 1 refers to the significant accounting policies, something that relates a wide range of individual line items. For example, cash and cash equivalents refers to all highly liquid instruments with less than 3 months until maturity. Inventories "are stated at the lower of cost or market." There is nothing under Note 1 about receivables. The other notes highlight specific details about each of these balance sheet items.

In Balance Sheet under Non-current Liabilities: Bonds Payable Less: Bond Discount $100,000 ($20,000 - $784)