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Intermediate Accounting Chapter 13
Terms in this set (54)
In general, what do liabilities involve?
Future disbursements of assets or services
What are the first of three essential characteristics of liabilities?
1) it is a present obligation that involves settlement by probable future transfer or use of cash goods or services
What are the second of three essential characteristics of liabilities?
It is an unavoidable obligation
What are the third of three essential characteristics of liabilities?
The transactions or other event creating the obligation has already occurred (past obligation)
How are liabilities classified on the balance sheet?
As current obligations or long-term obligations.
What are current liabilities?
those obligations whose liquidation is reasonable expected to require use of existing resources classified as current assets. aka you will pay with current assets
How are current liabilities recorded and reported?
At their full maturity value
Short-term obligations expected to be refinanced can be excluded from current liabilities only if the firm what?
1) Intendeds to refinance the liability on a long-term basis
2) Demonstrates the ability to refinance
How can ability be evidenced?
1) Actual refinancing after year-end and prior to issuance of financial statements
2) Signing a refinancing agreement (with a capable lender) which is noncancellable and not violated
Refinancing must occur before?
Current debt is due
When must the corporation assume a liability in regards to cash dividends?
At the date of declaration of a cash divident
Preferred dividends in arrears are not legal obligation until what?
Board of Directors formally authorizes a distribution.
What are stock dividends part of on the accounting equation?
Stockholders equity, NOT LIABILITIES
What are sales taxes payable?
Money companies collect and then remit to the governmental unit.
What are not taxable entitites?
Sole proprietorships and partnerships
Interim tax payments are based on estimates of what?
Estimates of the total annual tax liability.
How are assessments for prior years charged?
To the current year
Who are FICA taxes paid by?
The employer and employee
What does FICA stand for?
Federal Insurance Contributions Act
What is FICA a provision of?
They are a provision of the Social Security Act
What combination of taxes are referred to as FICA?
Social Security taxes and Medicare taxes
What is the FICA tax rate?
7.65% of each employee's first $127,200 annual wages
Employees wages in excess of $127,200 are taxed at?
Only for Medicare at 1.45%
What is the combined tax rate of 7.65% a combination of?
6.2% social security and 1.45% medicare
Who pays unemployment taxes?
What is FUTA?
Federal Unemployment Tax Act
What has been the FUTA rate since 2012?
How high can the credit be against FUTA tax amounts?
Maximum is 5.4% of FUTA taxable wages
If you are entitled to the maximum FUTA tax credit, what is the remaining rate?
Remaining rate will be 0.6%
What does the FUTA tax rate apply to?
The first $7,000 of wages paid to each employee during the year.
A liability has to be accrued for future absences what conditions are met?
1) Obligations arise from services already rendered by the employee
2) The rights vest or accumulate
3) Payment is probable
4) Amount can be reasonably estimated
What is Vested rights?
An obligation to pay employee exists even if employment is terminated
What is Accumulated rights?
Can be carried forward to future periods if not used in the period earned.
What are Bonus arrangements?
Employee bonuses are an expense (operating) and are usually based on net income.
What are Contingencies?
An existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will be ultimately be resolves when one or more future events occur or fail to occur.
What are gain contingencies?
Contingencies that are not recorded and are only disclosed when the probability is high that it will become a reality
What are Loss Contingencies?
Contingencies that result in recognition of a contingent liability
What are Contingent Liabilities?
Liabilities which are dependent upon the occurence or nonoccurence of one or more future events to confirm either the amount payable, or the payee, or the date payble, or its existence.
When does the condition have to exist by?
At the day of the balance sheet date.
What is probable?
The future event or events are likely to occur. A liability is recorded if the information indicates that it is probable that a liability has been incurred at the balance sheet date and the amount of the loss can be reasonably estimated.
What is reasonably possible?
The chance of the future event or events occurring is more than remote but less than likely.
Does Reasonable Possible have to be disclosed in notes?
Yes, it does have be disclosed in notes.
What is Remote?
The chance of the future event or events occurring is slight. Generally, no disclosure is needed.
What must be considered for Litigation, claims, and assessments?
1) Period in which the underlying cause for action occurred
2) The probability of an unfavorable outcome
3) The ability to make a reasonable estimate of the amount of the loss
What is Guarantee and Warranty costs?
The amount of the liability that is an estimate of all the costs that will be incurred after the sale and delivery
When can the cash basis method be used?
When it is not probable or the amount cannot be reasonably estimated. Companies expense warranty costs as incurred.
What is Expense Warranty Treatment?
This method should be used whenever the warranty is an integral and inseparable part of the product sale and requires warranty costs to be charged to operating expense in the current year of sale.
What is Sale Warranty Treatment?
Method that is used when the warranty is sold separately from the product and requires that revenues from the sale of the warranty be deferred and subsequently recognized as income over the life of the warranty contract.
What do Premiums and coupons offered to customers result in?
Result in the probable existence of a liability at the date of the financial statement
What are Environmental Liabilities?
Owed to EPA or responsible parties
What is Asset Retirement Obligations (ARO)?
Existing legal obligation associated with the retirement of a long-lived asset.
What are Examples of AROs?
Decommissioning, dismantling, restoring, reclaiming, removal, closure and postclosure costs.
How is ARO measured?
Measured at Fair Value and added to the "costs" of the asset with a liability of the same amount recorded
What is done after ARO cost is added?
Asset is then depreciated/depleted and the ARO is increased each year by interest expense
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