Chapter 13 Current Liabilities and ContingenciesWord下载.docx
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Chapter 13 Current Liabilities and ContingenciesWord下载.docx
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1.Whatisa“CurrentLiabilities”?
Whatisaliability?
Probablefuturesacrificesofeconomicbenefitsarisingfrompresentobligationsofan
entitytotransferassetsortoprovideservicestootherentitiesinthefutureasaresult
ofpasttransactionsorevents.
FASBStatementofFinancialAccountingConceptsNo.6,“ElementsofFinancial
Statements”
Currentliabilitiesare:
Obligationswhoseliquidationisreasonablyexpectedtorequiretheuseofcurrent
assetsorthecreationofothercurrentliabilities.
AccountingResearchBulletinNo.43,“RestatementandRevisionofAccounting
ResearchBulletins”.
SFASNo.78indicatesthatcurrentliabilitiesshouldincludeobligationsthataredueon
demandorthatwillbecomedueondemandwithinoneyearfromthebalancesheet
date.
2.Typicalcurrentliabilities
Accountspayable,Notespayable,Currentmaturitiesoflong-termdebt,Short-term
obligationsexpectedtoberefinanced,DividendsPayable,Returnabledeposits,
Unearnedrevenues,Salestaxespayable,Incometaxespayable,Employee-related
Liabilities
a.NotesPayables(N/P)
NotesPayablesarewrittenpromisestopayacertainsumofmoneyonaspecifiedfuturedate.Notespayablethatarisefromcash-borrowingactivitiesaregenerallyoftwotypes:
(1)Interest-bearingnotes,and
(2)Zero-interest-bearing(=Noninterest-bearing)notes.
Accountingandreportingforinterest-bearingnotesrequirestheaccountanttoaccrueinterestandreportaliabilityintheamountoftheaccruedinterestpayableplusthefacevalueofthenote.
Noninterest-bearningnotesdonotpayanystatedrateofinterestinadditiontothefaceamountofthenotes.Thelenderdeductsinterestonsuchnotesinadvanceandissuesthenotesatdiscount.Theborrowerreceivesanamountthatislessthanthefacevalueofthenote(e.g.,receivesincashthePVofthenote).
PVofanote=Facevalueatthematurity–interestordiscountchargedbythe
lender
Discountonthenotepayable=PVofanote-facevalueofthenote.
The
DiscountonNotesPayableisacontraaccounttoN/PandthereforeissubtractedfromNotesPayableonthebalancesheet.Thediscountischargedtointerestexpenseoverthelifeofthenote.
Example13-1(WSHP602!
!
)
AssumethatonNovember1,2003,ChesterfieldCompanyissuesa$100,000,one-yearnon-interest-bearingnotetoabankandthepresentvalueofthenoteis$88,000.
Theentrytorecordthistransactionis:
TheadjustingentryatDecember31,2003,follows:
b.Short-termObligationsExpectedtobeRefinanced
Incertaincircumstances,acompanymaywishtorefinanceashort-termobligationonalong-termbasis.Notexpectedtorequiretheuseofworkingcapitalduringthenextyear.
Sincethosedebtsmaynotrequiretheuseofworkingcapital,questionsariseabouttheproperclassificationatthebalancesheetdate.TheFASBissuedSFASNo.6toguidesuchclassificationissues.Acompanyisrequiredtoexcludeashort-termobligationfromcurrentliabilitiesonlyifbothofthefollowingconditionsaremet:
(a)Itmustintendtorefinancetheobligationonalong-termbasis.
(b)Itmustdemonstrateanabilitytoconsummatetherefinancing.
Theabilitytoconsummatetherefinancingmaybedemonstratedby(a)actuallyrefinancingtheshort-termobligationbyissuingalong-termobligationorequitysecuritiesafterthedateofthebalancesheetbutbeforeitisissued,Or(b)enteringintoafinancingagreementthatclearlypermitstheenterprisetorefinancethedebtonalong-termbasis.
c.DividendsPayable
Whenacompany’sBODdeclaresacashorpropertydividend,theamounttobepaidtostockholdersbecomesaliabilityofthecompany.Oncedeclared,dividendsareusuallypaidwithinafewmonths.Therefore,dividendspayableareusuallyclassifiedascurrentliabilities.StockdividendsareNOTliabilities.
Example13-2(WSHP604)
OnDecember26,2003,ArnoldCompanydeclaresa$1.50persharedividendtobepaidonJanuary31,2004,toshareholdersofrecordasofJanuary5,2004.
Theentriestorecorddeclarationandpaymentofcashdividendare:
d.CurrentMaturitiesofLong-termDebt
Long-termliabilitythatisdueondemandwithinayear
Theportionoflong-termdebtmaturingwithinthenextfiscalyearisreportedasacurrentliability.Long-termdebtsshouldnotbereportedascurrentliabilitiesif:
(1)theyareretiredbyassetsnotclassifiedascurrentassets,
(2)theyarerefinancedorretiredfromtheproceedsofnewissuesofdebt,
(3).theyareconvertedintocapitalstock.
e.ReturnableCashDeposits
Depositsmaybereceivedfromcustomerstoguaranteeperformanceofacontractorserviceorasguaranteestocoverpaymentofexpectedfutureobligations.Forexample,spacerentalagreementsoftenrequiretherentertomakesecurity,repair,andclearingdeposits.Atthetimesuchamountsarepaid,thepartyreceivingthedepositrecordsaliability,
f.UnearnedRevenues
Aliabilitytodelivergoodsorservicesinthefuture.Thejournalentriestorecordunearnedrevenuesare:
Uponreceipt:
Whentheadvanceisreceived,
Dr.Cash
Cr.UnearnedRevenues
Upondelivery:
Whentherevenueisearned,
Dr.UnearnedRevenues
Cr.Revenues
g.SalesTaxesPayable
Salestaxlawsrequiremerchantstocollectandremitsalestaxestoagovernmentauthority.Whenacompanycollectssalestaxes,itincursaliabilitytotheextentofthesalestaxescollected.Similarly,whenitpaysthesalestaxes,theliabilityisremoved.
Inmanycompanies,thesalestaxesandtheamountofthesalesarenotsegregatedatthetimeofsales.Instead,botharecreditedintotalinthesalesaccount.Inthatcase,theSalesaccountmustbedebitedfortheamountofthesalestaxesandSalesTaxesPayableaccountmustbecredited.
3.Contingencies(=ContingentLiability)
Contingentliabilitiesareobligationsthatmustbepaidifcertainconditionoccurs.
Thetermcontingentliabilityisusedtodescribeacircumstanceinwhichtheexistenceof
aliabilityisuncertain.
FASBStatementNo.5(AccountingforContingencies)
Acontingencyis“anexistingcondition,situation,orsetofcircumstancesinvolvinguncertaintyastopossiblegain(gaincontingency)orloss(losscontingency)toanenterprisethatwillultimatelyberesolvedwhenoneormorefutureeventsoccurorfailtooccur.”
Inmanycases,thepreciseamountofacontingentliability,ifany,alsomaynotbeknown.
Ifacompanyisrelativelycertainthatacontingentliabilityexistsandtheamountcanbereasonablyestimated,thecontingentliabilityshouldberecordedinthefinancialstatements.
a.GainContingencies
Accountantshaveadoptedaconservativepolicyinthe“gaincontingencies”area.GaincontingenciesareNOTrecorded(ARBNo.50).
Disclosedinthenotes
b.LossContingencies
Aliabilityincurredasaresultofalosscontingency.Whenalosscontingencyexists,thelikelihoodthatthefutureeventoreventswillconfirmtheincurrenceofaliabilitycanrangefrom“probable”to“remote”.
ExamplesofLosscontingencies
-Litigation,claims,injuryassessments(e.g.,possibilityoflawsuitsofpersonalinjury)
-Guaranteeandwarrantycosts
-Premiumandcoupons,etc.
Threeconditionsofprobability
TheFASBusesthetermsprobable,reasonablypossible,andremotetoidentifythreeareaswithinthatrange.Thethreecategoriesofprobability(Thelikelihoodofoccurrenceoftheevent)establishedbySFASNo.5are:
(1)Probable.Thefutureeventoreventsarelikelytooccur.
(2)Reasonablypossible.Thechanceofthefutureevent(s)occurringismore
thanremotebutlessthanlikely.
(3)Remote.Thechanceofthefutureevent(s)isslight.
Anestimatedlossfromalosscontingencyshouldberecordedbyachargetoexpenseandaliabilityrecorded.Estimatedlossesfromlosscontingenciesareaccruedasliabilitiesif:
(1)Itisprobablethataliabilityhasbeenincurred,and
(2)Theamountoflosscanbereasonablyestimated.
c.GuaranteeandWarrantyCosts
Awarrantyisapromise(futurecost)madebyasellertoabuyertomakegoodonadeficiency.Theestimatedwarrantyexpenseandtherelatedliabilityshouldberecognizedatthetimeoftheoriginalsaleoftheproduct.
Underthecashbasismethod,warrantycostsarechargedtotheperiodinwhichthecostsarepaid.Undertheaccrualbasismethod:
(1)warrantycosts(forwarrantiessoldwiththeproduct)arechargedtooperatingexpenseintheyearofsale(=Expensewarrantyapproach).
(2)extendedwarrantyrevenuesaredeferredandrecognizedoverthelifeofthewarrantycontract(=Saleswarrantyapproach).
Example:
Expensewarrantyapproach
AssumethatHenricoCorporationbeginsproductiononanewmachineinJuly2003andsells100unitsat$5,000eachbyitsyear-end,December31,2003.Eachmachineisunderwarrantyforoneyear.Thecompanyestimatedthatthewarrantycostwillprobablyaverage$200perunit.Further,asaresultofpartsr
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