Current Liabilities
What is a liability?
A present obligation arising from a past event that will require payment of assets or services.
What type of note is expected to be paid within a year?
A short-term note payable.
FICA taxes are shared between whom?
Employer and employee (each pays matching amounts).
Contingent liabilities depend on what?
A future event.
What is the amount printed on the face of a bond called?
Par (face) Value
What makes a liability a current liability?
It is expected to be paid within one year or the operating cycle.
How do you compute interest on a note?
Principal × Rate × Time.
What type of deduction are pension contributions or insurance premiums?
Voluntary employee deductions.
When is a contingency recorded as a liability?
When it is probable and can be reasonably estimated.
A bond issued at par means…
The market and stated interest rates are equal.
Sales tax collected from customers is recorded as what type of liability?
Current Liability (sales tax payable)
A company borrows $2,000 at 12% for 60 days. What is the interest?
$40
Vacation pay, warranties, and bonuses are examples of what?
Estimated liabilities.
How are reasonably possible contingencies disclosed?
In the footnotes only.
Fila issues $100,000 bonds at 96.4. Is this a discount or premium?
A discount.
Home Depot sells $6,000 of goods with a 5% sales tax. How much is the sales tax liability?
$300
Long-term notes are often repaid using what type of payment structure?
Installment payments (equal periodic payments).
If an employee earns two weeks of vacation each year, when is the expense recorded?
As earned—not when taken.
Debt guarantees are usually handled how?
Disclosed unless default is probable.
What happens to bond discounts and premiums over the life of the bond?
They are amortized to interest expense.
Unearned revenue is created when…
A company receives cash before providing goods or services.
What is a mortgage?
A long-term note secured by specific assets.
A car dealer sells a $16,000 car with a 4% estimated warranty cost. What is warranty expense?
$640.
Are uncertainties about the future (like a potential recession) considered contingencies?
No—uncertain future events unrelated to past transactions are NOT contingencies.
What does “callable” mean for a bond?
The issuer can retire (call) the bond early, often by paying a call premium.