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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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SUMMARY OF LEARNING OBJECTIVES

  1. Explain a current liability and identify the major types of current liabilities. A current liability is a debt that a company can reasonably expect to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer. The major types of current liabilities are notes payable, accounts payable, sales taxes payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest payable.
  2. Describe the accounting for notes payable. When a promissory note is interest-bearing, the amount of assets received upon the issuance of the note is generally equal to the face value of the note. Interest expense accrues over the life of the note. At maturity, the amount paid equals the face value of the note plus accrued interest.
  3. Explain the accounting for other current liabilities. Companies record sales taxes payable at the time the related sales occur. The company serves as a collection agent for the taxing authority. Sales taxes are not an expense to the company. Companies initially record unearned revenues in an Unearned Revenue account. As the company earns the revenue (that is, as the performance obligation is satisfied), a transfer from unearned revenue to earned revenue occurs. Companies report the current maturities of long-term debt as a current liability in the balance sheet.
  4. Explain why bonds are issued, and identify the types of bonds ...

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