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Classification of Liabilities

Pascal Corporation is preparing its December 31, 2010, balance sheet. The following items may be reported as either a current or long-term liability.

1. On December 15, 2010, Pascal declared a cash dividend of $2.00 per share to stockholders of record on December 31. The dividend is payable on January 15, 2011. Pascal has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury.

2. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 10% interest every September 30 and mature in installments of $25,000,000 every September 30, beginning September 30, 2011.

3. At December 31, 2009, customer advances were $12,000,000. During 2010, Pascal collected $30,000,000 of customer advances, and advances of $25,000,000 were earned.

For each item above indicate the dollar amounts to be reported as a current liability and as a long-term liability.

Solution Preview

1. The dividend amount is (1,000,000-50,000)*$2.00=$1,900,000. Because it is due within a year, the full $1,900,000 in dividends payable is a current liability.

2. Interest is payable from October 1, 2010 to December 31, ...

Solution Summary

This solution provides calculations and explanation to show the dollar amounts that should be reported as a current liability and long-term liability.

$2.19