chapter11-Current Liabilities and Payroll soltion
Chapter 11
Current Liabilities and Payroll
Questions
1. A current liability is one that is payable within the coming year or within the company’s normal operating cycle if longer than a year. All other liabilities are long-term. A contingent liability is a potential liability that depends on a future event arising out of past events. The future event will determine the amount and existence of the liability. A contingent liability may or may not become an actual obligation.
2. The company reports current liabilities for the short-term note payable of $50,000 and for interest payable of $1,000 ($50,000 × 0.04 × 6/12).
3. Retailers act as collecting agents for the federal government. Stores charge their customers GST, but the GST belongs to the federal government. The store has a liability to pay the federal government (Receiver General) the amount of tax collected less applicable input tax credits.
4. Current portion of long-term debt is the amount of the principal of long-term debt due within one year. Because this amount is due within one year, it is reported as a current liability on the balance sheet.
5. An accrued expense is an expense that has been incurred, but has not been paid. Because the expense has been incurred but not paid, it must be accrued, thus it is a liability.
6. Accounts payable and short-term notes payable are both current liabilities, that is, both are due and payable within one year or within the company’s operating cycle. Differences:
Accounts payable are amounts owed for products or services that are purchased on open account.
Short-term notes payable are a form of financing.
Accounts payable have no interest obligation (however, if paid late, interest or late payment charges could be incurred); short-term notes payable have a defined rate of interest due over the term of the note.
7. At the beginning of the school term, tuition collected in advance is a liability of the school because it is an unearned revenue. At the
Current Liabilities and Payroll
Questions
1. A current liability is one that is payable within the coming year or within the company’s normal operating cycle if longer than a year. All other liabilities are long-term. A contingent liability is a potential liability that depends on a future event arising out of past events. The future event will determine the amount and existence of the liability. A contingent liability may or may not become an actual obligation.
2. The company reports current liabilities for the short-term note payable of $50,000 and for interest payable of $1,000 ($50,000 × 0.04 × 6/12).
3. Retailers act as collecting agents for the federal government. Stores charge their customers GST, but the GST belongs to the federal government. The store has a liability to pay the federal government (Receiver General) the amount of tax collected less applicable input tax credits.
4. Current portion of long-term debt is the amount of the principal of long-term debt due within one year. Because this amount is due within one year, it is reported as a current liability on the balance sheet.
5. An accrued expense is an expense that has been incurred, but has not been paid. Because the expense has been incurred but not paid, it must be accrued, thus it is a liability.
6. Accounts payable and short-term notes payable are both current liabilities, that is, both are due and payable within one year or within the company’s operating cycle. Differences:
Accounts payable are amounts owed for products or services that are purchased on open account.
Short-term notes payable are a form of financing.
Accounts payable have no interest obligation (however, if paid late, interest or late payment charges could be incurred); short-term notes payable have a defined rate of interest due over the term of the note.
7. At the beginning of the school term, tuition collected in advance is a liability of the school because it is an unearned revenue. At the