(Classification of Liabilities)
Presented below are various account balances.
(a) Bank loans payable of a winery due Mar 10, 2016 (the product requires aging for 5 years before sale)
(b) Unamortized premium on bonds payable, of which 3,000 will be amortized during the next year
(c) Serial bonds payable, 1,000,000 of which 250,000 are due each July 31
(d) Amounts withheld from employees' wages for income tax
(e) Notes payable due Jan 15, 2015
(f) Credit balance in customers account arising from returns and allowances after collection in full of the account
(g) Bonds payable of 2,000,000 maturing June 30, 2014
(h) Overdraft of 1,000 in a bank account (no other balances are carried at this bank)
(i) Deposits made by customers who have ordered goods
Indicate whether each of the items above should be classified on Dec 31,2013 as a current liability, a long-term liability, or under some other classification. Consider each one independently from all others; that is, do not assume that all of them relate to one particular business. If the classification of some of the items is doubtful, explain why in each case.
a- This is a long term liability. Any current portion of the bank loans (due within one year) would be a current liability. If no payments are due before 2016, it is a long term liability.
b- The portion due within the next year is a current liability, with the remaining portion a long term liability. Any amount that must be paid within the current year (one ...
This solution provides a detailed explanation for each liability listed. Each item is properly classified as a current liability, long-term liability, or under another classification. Items that are considered doubtful are also thoroughly explained.