ACCT 200 Lecture Notes - Lecture 15: Accounts Payable, Promissory Note, Current Liability

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mauvecricket694

14 Nov 2016

School

University of Arizona

Department

Accounting

Course

ACCT 200

Professor

Silverberg

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Document Summary

Are identified on b/s as long-term debt due within one year. Are issued for varying times, but are considered current liabilities if due within one year: from existing current assets or through the creation of other current liabilities, within one year or the operating cycle, whichever is longer. Current liability: a debt that a company reasonably expects to pay. Debts that do not meet both criteria are long-term liabilities. Includes notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. Notes payable: an obligation in the form of a written note. Companies often have a portion of long-term that comes due in the current year. Many products purchased at retail stores are subject to sales taxes. Sales taxes are not reported as an expense. When companies receive an advance, it debits cash and credits a current liability account identifying the source of unearned revenue.

Related Questions

Listed below are several terms and phrases associated with current liabilities. Mach each List A to B

List A

1, Cash, current investments, and A/R all divided by current liabilities.

2, Payment is probable and can be reasonably estimated.

3, Gift cards

4, Long-term debt maturing within one year

5, Social Security and Medicare

6, Interest expense is recorded in the period interest is incurred rather than in the period interest is paid.

7, payment is reasonably possible and can be reasonably estimated.

8, Incurred on a notes payable.

9, Unsecured notes sold in minimum denominations of $25,000 with up to 270 days.

10, Classifying liabilities as either current or long-term helps inverstors and creditors assets this.

List B

a, Recoding a contingentliability

b, disclosure of a contingent liability

c, Interest expense

d, FICA

e, Commercial paper

f, The riskiness of a business's obligations

g, Current portion of Long-term debt

h, Unearned revenue

i, Acid=test ratio

j, Accual Accounting

chocolatewoodchuck193

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

Complex Balance Sheet

Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.

Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016
Assets		Liabilities and Shareholders' Equity
Cash	$225,000	Accounts payable	$133,800
Accounts receivable (net)	345,700	Mortgage payable	900,000
Inventories	560,000	Notes payable	500,000
Prepaid income taxes	40,000	Lawsuit liability	80,000
Investments	57,700	Income taxes payable	61,200
Land	450,000	Deferred tax liability	28,000
Building	1,750,000	Accumulated depreciation	420,000
Machinery and equipment	1,964,000	Total Liabilities	$2,123,000
Goodwill	37,000	Common stock, $50 par; 40,000 shares issued	$2,231,000
Total Assets	$5,429,400	Retained earnings	1,075,400
		Total Shareholders' Equity	$3,306,400
		Total Liabilities and Shareholders' Equity	$5,429,400

Your company has been engaged to perform an audit, during whichyou discover the following information:

Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.

Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.

During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.

Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.

On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.

The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.

The lawsuit liability will be paid in 2017.

Of the total deferred tax liability, $5,000 is considered acurrent liability.

The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.

The company was authorized to issue 100,000 shares of $50 parvalue common stock.

Required:

Prepare a corrected classified balance sheet as of December 31,2016.

Zeus Manufacturing Corporation Balance Sheet December 31, 2016
Assets
Current Assets:
Cash		$
Accounts receivable (net)
Inventories
Total current assets			$
Long-Term investment, at fair value
Property, Plant, and Equipment (at cost):
Land		$
Building	$
Machinery and equipment
Total
Less: Accumulated depreciation
Total property, plant, and equipment
Intangible Asset:
Goodwill
Other Assets:
Cash restricted for building purposes		$
Officer's note receivable
Land held for future building site
Total Assets			$
Liabilities
Current Liabilities:
Accounts payable		$
Current installments of long-term debt
Lawsuit liability
Income taxes payable
Deferred tax liability
Total current liabilities			$
Long-Term Debt:
Mortgage payable		$
Notes payable
Deferred tax liability
Total long-term debt
Total Liabilities			$
Shareholders' Equity
Contributed Capital:
Common stock, $50 par value		$
Additional paid-in capital
Total paid-in capital		$
Retained earnings
Accumulated Other Comprehensive Loss:
Unrealized decrease in value of long-term investment
Total		$
Less: Cost of treasury stock
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity			$

browncattle687

ACCT 200 Lecture Notes - Lecture 15: Accounts Payable, Promissory Note, Current Liability

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