Explore BrainMass
Share

Explore BrainMass

    Current liabilities, contingencies, bonds and bond values

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1) What are the criteria for classifying an item as a current liability? What are some examples of current liabilities? Why is it important to classify a portion of long-term debt on a yearly basis as a current liability? What is the implication of misclassifying a liability as current or long-term?

    2) What is a contingency? Why are contingencies important to users of financial statements? What are the criteria for recording contingencies? Should companies record a liability for threatened litigation? Why or why not?

    3) What is a bond? What are some features of a bond? How do you value bonds? What factors can affect that value?

    © BrainMass Inc. brainmass.com October 10, 2019, 5:01 am ad1c9bdddf
    https://brainmass.com/business/accounting-for-liabilities/current-liabilities-contingencies-bonds-and-bond-values-488891

    Solution Preview

    1 - Current liabilities are liabilities that will come due within one year's time. If the liability is due in more than one year, it is a long-term liability. When the liability is due is the determining factor for classifying a liability as short term or long term. Examples of current liabilities include accounts payable, wages payable, income taxes payable, and credit card debt. It is important to classify a portion of long term debt that's due on a yearly basis as a current liability because if it's not made, 100% of the debt would show as a long term liability. This would create an erroneous balance sheet and a misstatement in liquidity ratios, which use current liabilities. If a liability is ...

    Solution Summary

    1) What are the criteria for classifying an item as a current liability? What are some examples of current liabilities? Why is it important to classify a portion of long-term debt on a yearly basis as a current liability? What is the implication of misclassifying a liability as current or long-term?

    2) What is a contingency? Why are contingencies important to users of financial statements? What are the criteria for recording contingencies? Should companies record a liability for threatened litigation? Why or why not?

    3) What is a bond? What are some features of a bond? How do you value bonds? What factors can affect that value?

    $2.19