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Chapter 11: Q1RQ (page 603)

What are the three main characteristics of liabilities?

Short Answer

Expert verified

Liability is amonetary burdenon an individual or a business entity that will be paid in the future.

Step by step solution

01

Meaning of Liabilities

A liability is an obligation owed by a person or a business, typically in the form of money. Over time, the liabilities will resolve by transmitting economic advantages like money, products, or services.

02

Characteristics of liabilities

Liabilities often have three characteristics:

They happen as a result of a previous transaction or occurrence.

It establishes a present liability for future cash or service payments.

Liabilities are an unavoidable burden.

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Most popular questions from this chapter

What is a contingent liability? Provide some examples of contingencies.

Theodore Simpson works for Blair Company all year and earns a monthly salary of \(4,000. There is no overtime pay.

Based on Theodore鈥檚 W-4, Blair withholds income taxes at 15% of his gross pay. As of July 31, Theodore had \)28,000 ofcumulative earnings.

Journalize the accrual of salary expense for Blair Company related to the employment of Theodore Simpson for the month ofAugust.

How do unearned revenues arise?

How is the times-interest-earned ratio calculated, and what does it evaluate?

Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. SellSoft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities.

Requirements

  1. Why would a company prefer not to disclose its contingent liabilities?
  2. Describe how a bank could be harmed if a company seeking a loan did not disclose its contingent liabilities.
  3. What ethical tightrope must companies walk when they report contingent liabilities?
See all solutions

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