2. Financial Accounting, Seventh Edition10
REPORTING
AND ANALYZING LIABILITIES
Financial Accounting, Seventh Edition

3. Learning Objectives
After studying this chapter, you should be able to:
Explain a current liability and identify the major types of current liabilities.
Describe the accounting for notes payable.
Explain the accounting for other current liabilities.
Identify the types of bonds.
Prepare the entries for the issuance of bonds and interest expense.
Describe the entries when bonds are redeemed.
Identify the requirements for the financial statement presentation and analysis of liabilities.

4. Preview of Chapter 10 Financial Accounting Seventh Edition
Kimmel Weygandt Kieso

5. The company has a present obligation
Defining Liabilities
C 1
The company has a present obligation
Because of a past event . . .
. . . For future sacrifices
A liability is a present obligation that grew out of a past event and will require a future sacrifice to extinguish the obligation.
Past
Present
Future
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6. Classifying Liabilities
Current Liabilities
Expected not to be paid within one year or the company’s operating cycle, whichever is longer.
Long-Term Liabilities
Expected to be paid within one year or the company’s operating cycle, whichever is longer.
Part One
Current liabilities, also called short term liabilities, are expected to be paid within one year or the normal operating cycle of the company, whichever is longer. Current liabilities are usually extinguished by payment of current assets.
Part Two Long-term liabilities are not expected to be paid or extinguished within one year. In this chapter, we will concentrate on current liabilities.
The relationship between total liabilities and current liabilities depends upon the nature of business operations. The ratio between the two varies widely among industries and companies.
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7. Current Liabilities What is a Current Liability? Two key features:
Company expects to pay the debt from existing current assets or through the creation of other current liabilities.
Company will pay the debt within one year or the operating cycle, whichever is longer.
Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest.
LO 1 Explain a current liability and identify the major types of current liabilities.

8. Current Liabilities Question
To be classified as a current liability, a debt must be expected to be paid:
out of existing current assets.
by creating other current liabilities.
within 2 years.
both (a) and (b).
LO 1 Explain a current liability and identify the major types of current liabilities.

9. Current Liabilities Notes Payable Written promissory note.
Usually require the borrower to pay interest.
Those due within one year of the balance sheet date are usually classified as current liabilities.
LO 2 Describe the accounting for notes payable.

10. Current Liabilities
Illustration: First National Bank agrees to lend $100,000 on September 1, 2014, if Cole Williams Co. signs a $100,000, 12%, four-month note maturing on January 1. When a company issues an interest-bearing note, the amount of assets it receives generally equals the note’s face value.
Sept. 1
Cash 100,000
Notes payable 100,000
LO 2 Describe the accounting for notes payable.

11. Current Liabilities
Illustration: If Cole Williams Co. prepares financial statements annually, it makes an adjusting entry at December 31 to recognize interest.
Dec. 31
Interest expense 4,000 *
Interest payable 4,000
* $100,000 x 12% x 4/12 = 4,000
LO 2 Describe the accounting for notes payable.

12. Current Liabilities
Illustration: At maturity (January 1), Cole Williams Co. must pay the face value of the note plus interest. It records payment as follows.
Jan. 1
Notes payable 100,000
Interest payable 4,000
Cash 104,000
LO 2 Describe the accounting for notes payable.

13. Current Liabilities Sales Tax Payable
Sales taxes are expressed as a stated percentage of the sales price.
Selling company
collects tax from the customer.
remits the collections to the state’s department of revenue.
LO 3 Explain the accounting for other current liabilities.

14. Current Liabilities
Illustration: The March 25 cash register readings for Cooley Grocery show sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is:
Mar. 25
Cash 10,600
Sales revenue 10,000
Sales tax payable 600
LO 3 Explain the accounting for other current liabilities.

15. Current Liabilities
Sometimes companies do not ring up sales taxes separately on the cash register.
Illustration: Cooley Grocery rings up total receipts of $10,600. Because the amount received from the sale is equal to the sales price 100% plus 6% of sales, (sales tax rate of 6%), the journal entry is:
Mar. 25
Cash 10,600
Sales revenue 10,000 *
Sales tax payable 600
* $10,600 / 1.06 = $10,000
LO 3 Explain the accounting for other current liabilities.

16. Current Liabilities Unearned Revenue
Revenues that are received before the company delivers goods or provides service.
Company debits Cash, and credits a current liability account (Unearned Revenue).
When the company earns the revenue, it debits the Unearned Revenue account, and credits a revenue account.
LO 3 Explain the accounting for other current liabilities.

17. Current Liabilities
Illustration: Superior University sells 10,000 season football tickets at $50 each for its five-game home schedule. The entry for the sales of season tickets is:
Aug. 6
Cash 500,000
Unearned ticket revenue 500,000
As each game is completed, Superior records the earning of revenue.
Sept. 7
Unearned ticket revenue 100,000
Ticket revenue 100,000
LO 3 Explain the accounting for other current liabilities.

18. Current Liabilities Current Maturities of Long-Term Debt
Portion of long-term debt that comes due in the current year.
No adjusting entry required.
Illustration: Wendy Construction issues a five-year, interest-bearing $25,000 note on January 1, This note specifies that each January 1, starting January 1, 2012, Wendy should pay $5,000 of the note. When the company prepares financial statements on December 31, 2011,
What amount should be reported as a current liability? ___________
What amount should be reported as a long-term liability? _________
$5,000
$20,000
LO 3 Explain the accounting for other current liabilities.

19. Current Liabilities Payroll and Payroll Taxes Payable
The term “payroll” pertains to both:
Salaries - managerial, administrative, and sales personnel (monthly or yearly rate).
Wages - store clerks, factory employees, and manual laborers (rate per hour).
Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay.
LO 3 Explain the accounting for other current liabilities.

20. Employee FICA Taxes Federal Insurance Contributions Act (FICA)
FICA Taxes — Soc. Sec.
FICA Taxes — Medicare
2008: 6.2% of the first $102,000 earned in the year ( Max = $6,324).
2008: 1.45% of all wages earned in the year.
The rate of withholding for FICA taxes and Medicare taxes varies from year to year, but in 2008, the FICA rate was six point two percent on the first one hundred two thousand dollars of gross pay. The Medicare rate of one point forty-five percent was applied on all of your gross pay in 2008, as well.
Your employer is required to match the amounts withheld for FICA and Medicare on a dollar for dollar basis. For every ten dollars withheld from your paycheck, your employer must pay ten dollars on your behalf to the Internal Revenue Service.
Employers must remit (i.e.pay) withheld taxes to the Internal Revenue Service (IRS).
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21. Current Liabilities
Illustration: Assume Cargo Corporation records its payroll for the week of March 7 as follows:
Mar. 7
Salaries and wages expense 100,000
FICA tax payable 7,650
Federal income tax payable 21,864
State income tax payable 2,922
Salaries and wages payable 67,564
Record the payment of this payroll on March 7.
Mar. 7
Salaries and wages payable 67,564
Cash 67,564
LO 3

22. Employer Payroll Taxes
Medicare Taxes
Federal and State Unemployment Taxes
FICA Taxes
Employers pay amounts equal to that withheld from the employee’s gross pay.
Your employer must match your contributions for FICA and Medicare taxes.
In addition, your employer must pay all federal and state unemployment taxes.
The federal and state unemployment tax rates are subject to change. In 2008, the federal rate was a maximum of six point two percent on the first seven thousand dollars of earnings for each employee. The federal tax can be reduced by as much as five point four percent if your employer has a very good employment record. Therefore the resulting net rate used for most FUTA calculations is point eight percent.
The state portion of the rate is five point four percent on the first seven thousand dollars of earnings by each employee. Most states reduce this rate to employers with excellent employment records.
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23. Current Liabilities
Payroll tax expense results from three taxes that governmental agencies levy on employers.
These taxes are:
FICA tax
Federal unemployment tax
State unemployment tax
LO 3 Explain the accounting for other current liabilities.

24. Current Liabilities
Illustration: Based on Cargo Corp.’s $100,000 payroll,
the company would record the employer’s expense and liability for these payroll taxes as follows.
Payroll tax expense 13,850
FICA tax payable 7,650
State unemployment taxes payable 800
Federal unemployment taxes payable 5,400
LO 3 Explain the accounting for other current liabilities.

25. Current Liabilities Question Employer payroll taxes do not include:
Federal unemployment taxes.
State unemployment taxes.
Federal income taxes.
FICA taxes.
LO 3 Explain the accounting for other current liabilities.

27. Bond: Long-Term Liabilities
Bonds are a form of interest-bearing notes payable issued by corporations, universities, and governmental agencies.
Sold in small denominations (usually $1,000 or multiples of $1,000).
When a corporation issues bonds, it is borrowing money. The person who buys the bonds (the bondholder) is investing in bonds.
LO 4 Identify the types of bonds.

28. Bond: Long-Term Liabilities
Types of Bonds
Secured
Unsecured
Convertible
Callable
LO 4 Identify the types of bonds.

30. Bond: Long-Term Liabilities
Issuing Procedures
Alternative Terminology The
contractual rate is often referred
to as the stated rate.
Bond certificate
Issued to the investor.
Provides name of the company issuing bonds, face value, maturity date, and contractual (stated) interest rate.
Face value - principal due at the maturity.
Maturity date - date final payment is due.
Contractual interest rate – rate to determine cash interest paid, generally semiannually.
LO 4 Identify the types of bonds.

31. Bond: Long-Term Liabilities
Illustration 10-3
LO 4

32. Bond: Long-Term Liabilities
Determining the Market Value of Bonds
The current market price (present value) of a bond is a function of three factors:
the dollar amounts to be received,
the length of time until the amounts are received, and
the market rate of interest.
The process of finding the present value is referred to as discounting the future amounts.
LO 4 Identify the types of bonds.

33. Bond: Long-Term Liabilities
Illustration: Assume that Acropolis Company on January 1, 2014, issues $100,000 of 9% bonds, due in five years, with interest payable annually at year-end.
Illustration 10-4 Time diagram depicting cash
flows
Illustration 10-5
Computing the market price of bonds
LO 4 Identify the types of bonds.

34. Accounting for Bond Issues
A corporation records bond transactions when it
issues or retires (buys back) bonds and
when bondholders convert bonds into common stock.
Bonds may be issued at
face value,
below face value (discount), or
above face value (premium).
Bond prices are quoted as a percentage of face value.
LO 5 Prepare the entries for the issuance of bonds and interest expense.

35. Accounting for Bond Issues
Question
The rate of interest investors demand for loaning funds to a corporation is the:
contractual interest rate.
face value rate.
market interest rate.
stated interest rate.
LO 5 Prepare the entries for the issuance of bonds and interest expense.

36. Issuing Bonds at Face Value
Illustration: Devor Corporation issues 100, five-year, 10%, $1,000 bonds dated January 1, 2014, at 100 (100% of face value). The entry to record the sale is:
Jan. 1 Cash 100,000
Bonds payable 100,000
Prepare the entry Devor would make to accrue interest on December 31. ($100,000 x 10% x 12/12)
Dec. 31 Interest expense 10,000
Interest payable 10,000
LO 5 Prepare the entries for the issuance of bonds and interest expense.

37. Issuing Bonds at Face Value
Prepare the entry Devor would make to pay the interest on Jan. 1, 2015.
Jan. 1 Interest payable 10,000
Cash 10,000
LO 5 Prepare the entries for the issuance of bonds and interest expense.

38. Accounting for Bond Issues
Issue at Par, Discount, or Premium?
Illustration 10-6
Helpful Hint Bond prices vary inversely with changes in the market interest rate. As market interest rates decline, bond prices increase. When a bond is issued, if the market interest rate is below the contractual rate, the bond price is higher than the face value.
LO 5

39. Accounting for Bond Issues
Question
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:
the contractual interest rate exceeds the market interest rate.
the market interest rate exceeds the contractual interest rate.
the contractual interest rate and the market interest rate are the same.
no relationship exists between the two rates.
LO 5 Prepare the entries for the issuance of bonds and interest expense.

40. Issuing Bonds at a Discount
Illustration: Assume that on January 1, 2014, Candlestick Inc. sells $100,000, five-year, 10% bonds at 98 (98% of face value) with interest payable on January 1. The entry to record the issuance is:
Jan. 1 Cash 98,000
Discount on bonds payable 2,000
Bonds payable 100,000
LO 5 Prepare the entries for the issuance of bonds and interest expense.

41. Issuing Bonds at a Discount
Illustration 10-7
Statement presentation of discount on bonds payable
Statement Presentation
Sale of bonds below face value causes the total cost of borrowing to be more than the bond interest paid.
The reason: Borrower is required to pay the bond discount at the maturity date. Thus, the bond discount is considered to be a increase in the cost of borrowing.
LO 5 Prepare the entries for the issuance of bonds and interest expense.

42. Issuing Bonds at a Discount
Total Cost of Borrowing
Illustration 10-8
Illustration 10-9
LO 5 Prepare the entries for the issuance of bonds and interest expense.

43. Issuing Bonds at a Discount
Question
Helpful Hint Both a discount
and a premium account are
valuation accounts. A valuation
account is one that is needed to
value properly the item to which
it relates.
Discount on Bonds Payable:
has a credit balance.
is a contra account.
is added to bonds payable on the balance sheet.
increases over the term of the bonds.
LO 5 Prepare the entries for the issuance of bonds and interest expense.

44. Issuing Bonds at a Premium
Illustration: Assume that the Candlestick Inc. bonds previously described sell at 102 rather than at 98. The entry to record the sale is:
Jan. 1 Cash ,000
Bonds payable 100,000
Premium on bonds payable 2,000
LO 5 Prepare the entries for the issuance of bonds and interest expense.

45. Issuing Bonds at a Premium
Statement Presentation
Illustration 10-11
Statement presentation of premium on bonds payable
Sale of bonds above face value causes the total cost of borrowing to be less than the bond interest paid.
The reason: The borrower is not required to pay the bond premium at the maturity date of the bonds. Thus, the bond premium is considered to be a reduction in the cost of borrowing.
LO 5 Prepare the entries for the issuance of bonds and interest expense.

46. Issuing Bonds at a Premium
Total Cost of Borrowing
Illustration 10-12
Illustration 10-13
LO 5 Prepare the entries for the issuance of bonds and interest expense.

47. Accounting for Bond Redemptions
Redeeming Bonds at Maturity
Candlestick records the redemption of its bonds at maturity as follows:
Bonds payable 100,000
Cash 100,000
LO 6 Describe the entries when bonds are redeemed.

48. Accounting for Bond Retirements
Redeeming Bonds at Maturity
When a company retires bonds before maturity, it is necessary to:
eliminate the carrying value of the bonds at the redemption date;
record the cash paid; and
recognize the gain or loss on redemption.
The carrying value of the bonds is the face value of the bonds less unamortized bond discount or plus unamortized bond premium at the redemption date.
LO 6 Describe the entries when bonds are redeemed.

49. Accounting for Bond Retirements
Question
When bonds are redeemed before maturity, the gain or loss on redemption is the difference between the cash paid and the:
carrying value of the bonds.
face value of the bonds.
original selling price of the bonds.
maturity value of the bonds.
LO 6 Describe the entries when bonds are redeemed.

50. Accounting for Bond Retirements
Illustration: Assume at the end of the fourth period, Candlestick Inc., having sold its bonds at a premium, retires the bonds at 103 after paying the annual interest. Assume that the carrying value of the bonds at the redemption date is $100,400 (principal $100,000 and premium $400). Candlestick records the redemption at the end of the fourth interest period (January 1, 2018) as:
Bonds payable 100,000
Premium on bonds payable 400
Loss on bond redemption 2,600
Cash 103,000
LO 6 Describe the entries when bonds are redeemed.

51. Accounting for Bond Retirements
Question
When bonds are converted into common stock:
a gain or loss is recognized.
the carrying value of the bonds is transferred to paid-in capital accounts.
the market price of the stock is considered in the entry.
the market price of the bonds is transferred to paid-in capital.
LO 6 Describe the entries when bonds are redeemed.

52. Financial Statement Analysis and Presentation
Balance Sheet Presentation
Illustration 10-15
LO 7

53. Financial Statement Analysis and Presentation
Illustration 10-16
LO 7

54. Financial Statement Analysis and Presentation
Liquidity
Illustration 10-17
Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.
LO 7 Identify the requirements for the financial statement presentation and analysis of liabilities.

55. Financial Statement Analysis and Presentation
Solvency
Illustration 10-18
Solvency ratios measure the ability of a company to survive over a long period of time.
LO 7

57. Financial Statement Analysis and Presentation
Off-Balance-Sheet Financing
Contingencies
Leasing
Operating lease
Capital lease
LO 7 Identify the requirements for the financial statement presentation and analysis of liabilities.

59. Straight-Line Amortization
Appendix 10A
Amortizing Bond Discount
To follow the expense recognition principle, companies allocate bond discount to expense in each period in which the bonds are outstanding.
Illustration 10A-1
LO 8 Apply the straight-line method of amortizing bond discount and bond premium.

60. Straight-Line Amortization
Appendix 10A
Amortizing Bond Discount
Illustration: Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2014, for $98,000 (discount of $2,000). Interest is payable on January 1 of each year. Prepare the entry to accrue interest at Dec. 31, 2014.
Dec. 31
Interest expense 10,400
Discount on bonds payable 400
Interest payable 10,000
LO 8 Apply the straight-line method of amortizing bond discount and bond premium.

61. Straight-Line Amortization
Appendix 10A
Amortizing Bond Discount
Illustration 10A-2
LO 8 Apply the straight-line method of amortizing bond discount and bond premium.

62. Straight-Line Amortization
Appendix 10A
Amortizing Bond Premium
Illustration: Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2014, for $102,000 (premium of $2,000). Interest is payable on January 1 of each year. Prepare the entry to accrue interest at Dec. 31, 2014.
Dec. 31
Interest expense 9,600
Premium on bonds payable 400
Interest payable 10,000
LO 8 Apply the straight-line method of amortizing bond discount and bond premium.

63. Straight-Line Amortization
Appendix 10A
Amortizing Bond Premium
Illustration 10A-4
LO 8 Apply the straight-line method of amortizing bond discount and bond premium.

64. Effective Interest Amortization
Appendix 10B
Under the effective-interest method, the amortization of the discount or premium results in interest expense equal to a constant percentage of the carrying value.
Required steps:
Compute the bond interest expense.
Compute the bond interest paid or accrued.
Compute the amortization amount.
Illustration 10B-1
LO 9

65. Effective Interest Amortization
Appendix 10B
Amortizing Bond Discount
Illustration: Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2014, for $98,000. The effective-interest rate is 10.53% and interest is payable on Jan. 1 of each year. Prepare the bond discount amortization schedule.
LO 9 Apply the effective-interest method of amortizing bond discount and bond premium.

66. Effective Interest Amortization
Appendix 10B
Amortizing Bond Discount
Illustration 10B-2
LO 9 Apply the effective-interest method of amortizing bond discount and bond premium.

67. Effective Interest Amortization
Appendix 10B
Amortizing Bond Discount
Illustration: Candlestick, Inc. records the accrual of interest and amortization of bond discount on Dec. 31, as follows:
Dec. 31
Interest expense 10,319
Discount on bonds payable 319
Interest payable 10,000
LO 9 Apply the effective-interest method of amortizing bond discount and bond premium.

68. Effective Interest Amortization
Appendix 10B
Amortizing Bond Premium
Illustration: Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2014, for $102,000. The effective-interest rate is 9.48% and interest is payable on Jan. 1 of each year. Prepare the bond premium amortization schedule.
LO 9 Apply the effective-interest method of amortizing bond discount and bond premium.

69. Effective Interest Amortization
Appendix 10B
Amortizing Bond Premium
Illustration 10B-4
LO 9 Apply the effective-interest method of amortizing bond discount and bond premium.

70. Effective Interest Amortization
Appendix 10B
Amortizing Bond Premium
Illustration: Candlestick, Inc. records the accrual of interest and amortization of premium discount on Dec. 31, as follows:
Dec. 31
Interest expense 9,670
Premium on bonds payable 330
Interest payable 10,000
LO 9 Apply the effective-interest method of amortizing bond discount and bond premium.

71. Long-Term Notes Payable
Appendix 10C
Long-Term Notes Payable
May be secured by a mortgage that pledges title to specific assets as security for a loan.
Typically, the terms require the borrower to make installment payments over the term of the loan. Each payment consists of
interest on the unpaid balance of the loan and
a reduction of loan principal.
Companies initially record mortgage notes payable at face value.
LO 10 Describe the accounting for long-term notes payable.

72. Long-Term Notes Payable
Appendix 10C
Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, The terms provide for semiannual installment payments of $33,231.
Illustration 10C-1
LO 10 Describe the accounting for long-term notes payable.

73. Long-Term Notes Payable
Appendix 10C
Illustration: Porter Technology records the mortgage loan and first installment payment as follows:
Dec. 31
Cash 500,000
Mortgage payable 500,000
Jun. 30
Interest expense 30,000
Mortgage payable 3,231
Cash 33,231
LO 10 Describe the accounting for long-term notes payable.

74. Long-Term Notes Payable
Appendix 10C
Question
Each payment on a mortgage note payable consists of:
interest on the original balance of the loan.
reduction of loan principal only.
interest on the original balance of the loan and reduction of loan principal.
interest on the unpaid balance of the loan and reduction of loan principal.
LO 10 Describe the accounting for long-term notes payable.

75. Key Points
Liabilities are defined by the IASB as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Liabilities may be legally enforceable via a contract or law but need not be. That is, they can arise due to normal business practices or customs.
IFRS requires that companies classify liabilities as current or non-current on the face of the statement of financial position (balance sheet) except in industries where a presentation based on liquidity would be considered to provide more useful information (such as financial institutions). When current liabilities are presented, they are generally presented in order of liquidity.
LO 11

76. Key Points
Under IFRS, liabilities are classified as current if they are expected to be paid within 12 months.
Similar to GAAP, items are normally reported in order of liquidity. Companies sometimes show liabilities before assets. Also, they will sometimes show non-current (long-term) liabilities before current liabilities.
Under both GAAP and IFRS, preferred stock that is required to be redeemed at a specific point in time in the future must be reported as debt, rather than being presented as either equity or in a “mezzanine” area between debt and equity.
LO 11 Compare the accounting procedures for liabilities under GAAP and IFRS.

77. Key Points
Under IFRS, companies sometimes will net current liabilities against current assets to show working capital on the face of the statement of financial position. (This is evident in the Zetar financial statements in Appendix C.)
IFRS requires use of the effective-interest method for amortization of bond discounts and premiums. GAAP allows use of the straight-line method where the difference is not material. Under IFRS, companies do not use a premium or discount account but instead show the bond at its net amount.
LO 11 Compare the accounting procedures for liabilities under GAAP and IFRS.

78. Key Points
Unlike GAAP, IFRS splits the proceeds from the convertible bond between an equity component and a debt component. The equity conversion rights are reported in equity.
Both Boards share the same objective of recording leases by lessees and lessors according to their economic substance—that is, according to the definitions of assets and liabilities. However, GAAP for leases is much more “rules-based,” with specific bright-line criteria (such as the “90% of fair value” test) to determine if a lease arrangement transfers the risks and rewards of ownership. IFRS is more conceptual in its provisions. Rather than a 90% cut-off, it asks whether the agreement transfers substantially all of the risks and rewards associated with ownership.
LO 11

79. Key Points
Under GAAP, some contingent liabilities are recorded in the financial statements, others are disclosed, and in some cases no disclosure is required. Unlike GAAP, IFRS reserves the use of the term contingent liability to refer only to possible obligations that are not recognized in the financial statements but may be disclosed if certain criteria are met.
For those items that GAAP would treat as recordable contingent liabilities, IFRS instead uses the term provisions. Provisions are defined as liabilities of uncertain timing or amount. Under IFRS, the measurement of a provision related to an uncertain obligation is based on the best estimate of the expenditure required to settle the obligation.
LO 11

80. Looking to the Future
The FASB and IASB are currently involved in two projects. One project is investigating approaches to differentiate between debt and equity instruments. The other project, the elements phase of the conceptual framework project, will evaluate the definitions of the fundamental building blocks of accounting. In addition to these projects, the FASB and IASB have also identified leasing as one of the most problematic areas of accounting. A joint project will initially focus primarily on lessee accounting. One of the first areas to be studied is, “What are the assets and liabilities to be recognized related to a lease contract?” Should the focus remain on the leased item or the right to use the leased item? This question is tied to the Boards’ joint project on the conceptual framework—defining an “asset” and a “liability.”
LO 11

81. IFRS Practice Which of the following is false?
Under IFRS, current liabilities must always be presented before non-current liabilities.
Under IFRS, an item is a current liability if it will be paid within the next 12 months.
Under IFRS, current liabilities are shown in order of liquidity.
Under IFRS, a liability is only recognized if it is a present obligation.
LO 11 Compare the accounting procedures for liabilities under GAAP and IFRS.

82. IFRS Practice Under IFRS, a contingent liability is:
disclosed in the notes if certain criteria are met.
reported on the face of the financial statements if certain criteria are met.
the same as a provision.
not covered by IFRS.
LO 11 Compare the accounting procedures for liabilities under GAAP and IFRS.

83. IFRS Practice
The joint projects of the FASB and IASB could potentially:
change the definition of liabilities.
change the definition of equity.
change the definition of assets.
All of the above.
LO 11 Compare the accounting procedures for liabilities under GAAP and IFRS.

84. Copyright
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