Chapter 8: Current and Contingent Liabilities

Liabilities

Probable debts or obligations that result from past transactions, which will be paid with assets or services

Current liability

maturity of 1 year or less

Equity

Debt is considered riskier than _____

Interest

legal obligation that must be repaid

current cash equivalent

liabilities are measured by their _____ (what the creditor would accept to cancel the debt immediately)

used to analyze liquidity

working capital

current ratio

working capital

CA-CL

Current ratio

CA/CL

Current liabilities

accounts payable, accrued liabilities, unearned revenue, current maturities of L-T debt

accounts payable

used for supplies and inventory

accrued liabilities

wages payable, sales taxes payable, payroll taxes payable, interest payable

unearned revenue

received cash but no revenue

current maturities of long-term debt

portion of long-term debt that will be due within next year should be classified as a current liability. Installment payments due within a year

Contingent liabilities

recorded

contingent

do nothing

recorded

record in journal entry

probable and can be estimated

contingent

add to footnotes

probable and can not be estimated

possible

do nothing

remote

record at end of period with AJE

if liability is probable and can be estimated…

Interest-bearing notes

principle and interest due at maturity

\
issuance:

Cash

Note Payable

\
maturity:

NP

Int Exp

Cash

effective interest rate

interest exp/cash proceeds

non-interest bearing notes

interest is deducted in advance

face value

what is being paid back in the future

carrying value

face value - discount

can change over time

cash proceeds

face value for interest bearing

face value - discount for non-interest bearing