Concept explainers
Concept Introduction
Current Liabilities:
Current Liabilities are the debts or economic obligations that a company owes to its creditors and that have to be settled within one year or within its operating cycle, whichever period is longer.
Operating Cycle:
An operating cycle represents the average period of time that a company takes to acquire inventory, sell the inventory and collect cash from its customers for the inventory sold to them.
To Find:
The items that are normally classified as current liabilities for a company that has a 15-month operating cycle from the options given in the question.
Given Info:
The following items are given for classifying current liabilities (and non-current liabilities) for a company that has a 15-month operating cycle:
- Portion of long-term note due in 15 months.
- Note payable maturing in 2 years.
- Note payable due in 18 months.
- Note payable due in 11 months.
- FICA taxes payable.
- Salaries payable.
![Check Mark](/static/check-mark.png)
Answer to Problem 1QS
Solution:
The following items are normally classified as current liabilities for a company that has a 15-month operating cycle:
- Portion of long-term note due in 15 months.
- Note Payable due in 11 months.
- FICA taxes payable.
- Salaries payable.
The remaining items that are 'Note Payable maturing in 2 years' and 'Note Payable due in 18 months' are considered as non-current liabilities for a company that has a 15-month operating cycle.
Explanation of Solution
The classification of current and non-current liabilities for a company that has a 15-month operating cycle is explained as follows:
- Portion of long-term note due in 15 months- This is a current liability because the portion of long-term note is getting due in 15 months which is within the company's 15-month operating cycle.
- Note payable maturing in 2 years- This is not a current liability because note payable is maturing in 2 years and this is not within the company's 15-month operating cycle.
- Note payable due in 18 months- This is not a current liability because note payable is getting due in 18 months and this is not within the company's 15-month operating cycle.
- Note payable due in 11 months- This is a current liability because the note payable is getting due in 11 months which is within the company's 15-month operating cycle.
- FICA taxes payable- FICA taxes payable is a current liability because a company has to pay FICA taxes to the federal government within few days i.e. within one year or within its operating cycle.
- Salaries payable- Salaries payable is a current liability because salaries are typically payable by the company in less than one year.
A company's current liabilities have to be settled within one year or within its operating cycle, whichever period is longer. Therefore, a company that has a 15-month operating cycle should consider those items as current liabilities that have to be settled within 15 months.
Want to see more full solutions like this?
Chapter 11 Solutions
FUND.ACCT.PRIN.-CONNECT ACCESS
- QS 15-18 (Algo) Computing and recording over- or underapplied overhead LO P4 A company applies overhead at a rate of 170% of direct labor cost. Actual overhead cost for the current period is $1,081,900, and direct labor cost is $627,000. 1. Compute the under- or overapplied overhead. 2. Prepare the journal entry to close over- or underapplied overhead to Cost of Goods Sold. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the under- or overapplied overhead.arrow_forwardQuestion 6 During 2019, Bitsincoins Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, what is Bitsincoin's free cash flow? (3 marks)arrow_forwardQuestion 4 Waterfront Inc. wishes to borrow on a short-term basis without reducing its current ratio below 1.25. At present its current assets and current liabilities are $1,600 and $1,000 respectively. How much can Waterfront Inc. borrow? (5 marks)arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
![Text book image](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)