Answered: Listed below are several terms and…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 4RQSC

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Listed below are several terms and phrases associated with current liabilities. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.

List A

List B

1. An IOU promising to repay the amount borrowed plus interest.
2. Payment amount is reasonably possible and is reasonably estimable.
3. Mixture of liabilities and equity a business uses.
4. Payment amount is probable and is reasonably estimable.
5. A liability that requires the sacrifice of something other than cash.
6. Long-term debt maturing within one year.
7. FICA and FUTA.
8. Informal agreement that permits a company to borrow up to a prearranged limit.
9. Classifying liabilities as either current or longterm helps investors and creditors assess this.
10. Amount of note payable × annual interest rate × fraction of the year.

a. Recording of a contingent liability.

b. Deferred revenue.

c. The riskiness of a business’s obligations.

d. Disclosure of a contingent liability.

e. Interest on debt.

f. Payroll taxes.

g. Line of credit.

h. Capital structure.

i. Note payable.

j. Current portion of longterm debt.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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