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

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

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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Earnings			Withholdings
Beginning Cumulative Earnings	Current Period Earnings	Ending Cumulative Earnings	OASDI	Medicare	Income tax	Health Insurance	United way	Total Withholding	Net pay	Check No.	Salaries and Wages Expense
\( 77,000	\) 4,500				\( 900	\) 90	\(15			801
112,000	7,200				1,200	144	35			802
48,000	3,300				600	66	0			803
61,000	3,300				850	66	20			804
0	4,500				1,100	90	0			805
\)298,000	\(22,800				\)4,650	\(456	\)70

Likelihood of Future Event	How to Report the Contingency
Remote	Do not disclose. Record an expense and a liability based on estimated amounts. Describe the situation in a note to the financial statements.

Short Answer

Step by step solution

Current Liability

Long-term liability

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