Ch 13

CHAPTER 13 – CURRENT LIABILITIES AND CONTINGENCIES

I. Liabilities

A. Three Characteristics

1. Probable, future sacrifices of economic benefits

2. That arise from present obligations

3. Resulting from past transactions

B. Current Liabilities

1. Payable within 1 year

2. Reported at maturity value

C. Types of Current Liabilities

1. Accounts Payable

a. Buy merchandise on account

b. No interest component

2. Notes Payable

a. Written promise to pay a sum of money on a specified date

b. Interest component (Face*Annual Rate*Time to Maturity)

Note: Assume annual rates unless otherwise stated

3. Dividends Payable

a. Amounts owed to stockholders

b. Recorded at the declaration date

c. Dividends in arrears are not recorded as a current liability 4. Refundable Deposits

5. Unearned Revenues -cash is received prior to revenue being earned

6. Gift Cards- recorded as unearned revenue when sold Revenue is recognized when:

a. Gift cards are redeemed

b. When gift card usage is deemed remote

7. Sales Taxes

8. Income Taxes Payable

9. Employee-Related Liabilities

a. Payroll Deductions: Includes withholding, social security, insurance premiums, retirement plan contributions

b. Compensated Absences: Includes vacation and other paid time off. Record a liability if:

1. Attributable to employees' services already performed 2. The paid absence can be taken in a subsequent year 3. Payment is probable 4. The amount can be reasonably estimated

c. Employee Bonuses:

1. Tied to performance (financial and nonfinancial) 2. Compensation expense in the period earned D. Noncurrent