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Chapter 11: 1SE (page 604)

Rios Raft Company had the following liabilities.

a. Accounts Payable

b. Note Payable due in 3 years

c. Salaries Payable

d. Note Payable due in 6 months

e. Sales Tax Payable

f. Unearned Revenue due in 8 months

g. Income Tax Payable

Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).

Short Answer

Expert verified

The note payable due in 3 years is the only long-term liability and the rest are current liabilities.

Step by step solution

01

Current Liability

A current liability is an obligation that is payable within one year or within the one accounting cycle. It is the liability relating to operating activity or working capital.

From the given list following are the current liabilities:

a) Accounts Payable

c) Salaries payable

d) Notes payable due in 6 months

e) Sales tax payable

f) Unearned revenue due in 8 months

g) Income tax payable

02

Long-term liability

Long-term liability is the obligation that is payable for more than a year or more than one accounting cycle. This liability arises due to the financing activity and needs.

From the given list only (b) Notes payable due in 3 years in the long term liability.

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Most popular questions from this chapter

Curtis Company is facing a potential lawsuit. Curtis鈥檚 lawyers think that it is reasonably possible that it will lose the lawsuit. How should Curtis report this lawsuit?

The following transactions of Belkin Howe occurred during 2018:

Apr. 30 Howe is party to a patent infringement lawsuit of \(230,000. Howe鈥檚 attorney is certain it is remote that Howe will lose this lawsuit.

Jun. 30 Estimated warranty expense at 3% of sales of \)390,000.

Jul. 28 Warranty claims paid in the amount of \(6,300.

Sep. 30 Howe is party to a lawsuit for copyright violation of \)90,000. Howe鈥檚 attorney advises that it is probable Howe will lose this lawsuit. The attorney estimates the loss at \(90,000.

Dec. 31 Howe estimated warranty expense on sales for the second half of the year of \)520,000 at 3%.

Requirements

1. Journalize required transactions, if any, in Howe鈥檚 general journal. Explanations are not required.

2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?

Freeman Motors, a motorcycle manufacturer, had the following contingencies.

a. Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman鈥檚 attorneys estimate the potential loss will be \(4,500,000.

b. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous.

c. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be \)75,000.

Determine the appropriate accounting treatment for each of the situations Freeman is facing.

:On December 31, 2017, Franklin purchased $13,000 of merchandise inventory on a one-year, 9% note payable. Franklin uses a perpetual inventory system. Requirements

1. Journalize the company鈥檚 purchase of merchandise inventory on December 31, 2017.

2. Journalize the company鈥檚 accrual of interest expense on June 30, 2018, its fiscal year-end.

3. Journalize the company鈥檚 payment of the note plus interest on December 31, 2018

What is the difference between gross pay and net pay?
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