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1、Ch13Current_Liabilities_and_Contingencies(中级会计学)Chapter 13: Current Liabilities and ContingenciesIntermediate Accounting, 11th ed.Kieso, Weygandt, and WarfieldPrepared byJep Robertson and Renae ClarkNew Mexico State UniversityDescribe the nature, type, and valuation of current liabilities.Explain th
2、e classification issues of short-term debt expected to be refinanced.Identify types of employee-related liabilities.Identify the criteria used to account for and disclose gain and loss contingencies.After studying this chapter, you should be able to:Chapter 13: Current Liabilities and ContingenciesE
3、xplain the accounting for different types of loss contingencies.Indicate how current liabilities and contingencies are presented and analyzed.Chapter 13: Current Liabilities and ContingenciesWhat is a liability? Probable future sacrifices of economic benefits arising from present obligations to tran
4、sfer assets or to provide services in the future as a result of past transactions or events.Liabilities in GeneralCurrent liabilities are:Obligations whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabilities.Current LiabilitiesAccounts
5、 payableNotes payableCurrent maturities of long-term debtShort-term obligations expected to be refinancedDividendsReturnable depositsUnearned revenuesSales taxes payableIncome taxes payableEmployee-related liabilitiesTypical current liabilities:Current LiabilitiesAccounts payable, also referred to a
6、s trade accounts payable are:Balances owed for goods, supplies, or services purchased on open account.Valuation is based on invoice amount.Recorded on either net or gross basis.Accounts PayableNotes payable may be interest-bearing or non-interest-bearing.For non-interest-bearing notes, the differenc
7、e between the present value of the note and the face value of the note represents the discount on the note payable.The discount is the interest expense allocated over the term of the note.Notes PayableThe portion of long-term debt maturing within the next fiscal year is reported as a current liabili
8、ty.Long-term debts should not be reported as current liabilities if:they are retired by assets not classified as current assetsthey are refinanced by new issues of debtthey are converted into capital stock.Current Maturities of Long-Term DebtShort-term debt must be excluded from current liabilities
9、if:it is to be refinanced on a long-term basis, andthe entity demonstrates the ability to complete the refinancing.The entity has the ability to refinance if:the debt is actually refinanced before issue of the financial statements, orthe entity enters into a refinancing agreement. Short-Term Obligat
10、ions Expected to be RefinancedA cash dividend payable is: Payable to shareholders. Declared by the board of directors. Stock dividends are NOT liabilities.Returnable deposits:May have been received from customers or employees.Usually retained to guarantee performance.May be current or noncurrent lia
11、bilities.Dividends Payable and Returnable DepositsUnearned revenues represent receipts before goods or services are delivered.Upon receipt:CashUnearned RevenuesUpon delivery:Unearned RevenuesRevenuesUnearned RevenuesSales taxes payable are:Payable to governmental agencies.May or may not be separatel
12、y recognized at time of sale.Income taxes payable are:Payable to governmental agencies.Based on taxable income.Not levied on partnerships or sole-proprietorships.Sales Taxes and Income Taxes PayableEmployee-related liabilities are the following:Salaries or wages owed to employees at end of the accou
13、nting periodPayroll deductionsCompensated absencesBonusesEmployee-Related LiabilitiesPayroll deductions are taxes and miscellaneous deductions and include:Income tax w/hFICA taxes (1/2)Union duesOther (e.g., medical insurance)Employee PaysEmployer PaysFICA taxes (1/2)Fed. UnemploymentState Unemploym
14、entOther (e.g., medical insurance)Payroll DeductionsCompensated absences are absences from employment for which employees are paidA liability for such absences must be accrued if:Relates to services already rendered by employees,Relates to employees vested or accumulated rights of employee,Payment o
15、f the compensation is probable, and the amount can be reasonably estimated. The liability is recognized in the year earned by employeesEmployee-Compensated AbsencesBonuses may be given in addition to regular salaries to all or select group of employeesTypically tied to performance measures (e.g., ne
16、t income)In most cases are current liabilitiesBonus Agreements An existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) that will ultimately be resolved when one or more future events occur or when such event or
17、 events fail to occur.Contingency: DefinedGain contingencies are claims or rights to receive assets, which may become valid eventually.Examples are:Pending litigation whose probable outcome is favorablePossible tax refunds in tax disputesGain contingencies are not accrued!Gain ContingenciesLoss cont
18、ingencies involve situations of possible loss that are dependent on some future event(s).The likelihood of occurrence of the event may be: Remote (slight) Reasonably possible (more than remote but less than likely) Probable (likely) Loss Contingencies: GeneralEstimated losses from loss contingencies
19、 are accrued as liabilities if:It is probable that a liability has been incurred, andThe amount of loss can be reasonably estimated.The interpretation of these terms is often based on lawyers opinions. Loss Contingencies: AccrualTo determine whether a liability should be recorded, evaluate:The time
20、period in which the underlying cause of action occurredThe probability of an unfavorable outcomeThe ability to make a reasonable estimate of lossTo determine the probability of outcome, evaluate:Nature of litigation and progress of caseOpinion of legal counselResponse by managementLitigation, Claims
21、 and AssessmentsA warranty is a promise (future cost) made by a seller to a buyer to make good on a deficiency. Under the cash basis method, warranty costs are charged to the period in which the costs are paid.Under the accrual basis method:warranty costs (for warranties sold with the product) are e
22、stimated and matched with revenue.extended warranty revenues are deferred and recognized over the life of the warranty contract.Guarantee and Warranty CostsEstimated warranty costs:3% of 10,000 units at $15 each = $4,500Adjusting journal entry:Warranty Expense $4,500Estimated Liability (warranties)
23、$4,500Entry in 2004: (170 units repaired at $15 each)Estimated Liability (warranties) $ 2,550Parts Inventory $ 850Wages Payable $1,700Manufacturers Warranties: ExampleTwo ratios often used are:Current = Current assets Current liabilitiesAcid-test = Cash + Mkt. Sec + Net Recbls.Current liabilitiesBot
24、h are measurements of a firms liquidity.Analysis of Current LiabilitiesCopyrightCopyright ? 2004 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permissi
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