MGAB01H3 Lecture : Accounting for Current Liabilities

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10 Nov 2010

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Two key features: it is likely to be paid within one year or operating cycle, and it will be paid from existing current assets or through the creation of other current liabilities. Liabilities are described as definitely determinable, estimable, or contingent. This is one with a known amount, payee, and due date. This means that the company has been pre-authorized by the bank to borrow money, up to a preset limit, when it is needed. Collateral is usually required by the bank as protection in the event of a default on the loan. A number of companies show a negative, or overdrawn, cash balance at year end as a result of using their line of credit. This amount is known as bank indebtedness, bank overdraft, or bank advances. Notes payable are obligations in the form of written promissory notes. Interest is due at maturity; however, interest accrues over the life of the note and must be recorded periodically.

Related Questions

Most companies pay current liabilities

a. out of current assets.

b. by issuing interest-bearing notes payable.

c. by issuing stock.

d. by creating long-term liabilities.

mauvespider988

Match the following:

1. Acid-test ratio

2. Current portion of long-term debt

3. Recording a contingent liability

4. Commercial paper

5. Deferred revenues

6. Line of credit

7. Accrual accounting

8. Interest expense

9. The riskiness of a business's obligations

10. Disclosure of a contingent liability

A Cash, short-term investments, and accounts receivable alldivided by current liabilities.

B Loss is probable and amount is reasonably estimable.

C Gift cards

D Long-term debt maturing within one year.

E Informal agreement that permits a company to borrow up to aprearranged limit.

F Interest expense is recorded in the period interest isincurred rather than in the period interest is paid

G Loss is reasonably possible and amount is reasonablyestimable

H Incurred on a notes payable

I obligations Unsecured notes sold in minimum denominations of$25,000 with maturities up to 270 days

J Classifying liabilities as either current or long-term helpsinvestors and creditors assess this.

amaranthwasp103

Employers withhold which of the following from employee'spaychecks

Question 16 options:

LFRA

FICA

Unemployment Tax

All of the Above

The three key pieces of information that are stated on a bondcertificate are:

Question 19 options:

the interest payment, the face value of the bond, and the creditrating of the company.

the market interest rate, the price of the bond, and thematurity date.

the stated interest rate, the face value of the bond, and thematurity date.

the interest payment, the issue price of the bond, and thecredit rating of the company.

On October 1, your company borrows $200,000 in order to build anew factory. The loan is for 10 years, at 7% interest, andsemiannual interest payments are due each April and October. Thejournal entry to record the issuance of the promissory noteshould:

Question 20 options:

debit Notes Payable for $200,000, debit Interest Expense for$14,000, credit Cash for $200,000, and credit Interest Payable for$14,000

debit Accrued Interest for $14,000 and credit Cash for$14,000

debit Cash for $200,000 and credit Notes Payable for$200,000

debit Cash for $200,000, debit Interest Expense for $14,000,credit Notes Payable for $200,000, and credit Interest Payable$14,000.

Which of the following are generally recorded as liabilities onthe balance sheet?

Question 24 options:

	Remote likelihood liabilities.
	Possible contingent liabilities.
	Probable contingent liabilities.
	Immaterial contingent liabilities

pearworm429

MGAB01H3 Lecture : Accounting for Current Liabilities

MGAB01H3 Full Course Notes

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