Chapter 11 Current Liabilities, Non-Financial Liabilities, and Contingencies L. Problems P11-1. Suggested solution: Financial or non-financial obligation? F N
Item Liability 1. Accounts payable 2. Warranties payable 3. 4. 5.
USD bank loan Bank overdraft Sales tax payable
F F N
6. 7.
Notes payable Unearned revenue
F N
8. 9.
Lease liability HST payable
F N
10. 11. 12.
Bank loan Bonds payable Obligation under customer loyalty plan Income taxes payable
F F N
13.
N
Explanation Obligation is to deliver goods or services
Obligation is not contractual in nature Obligation is to deliver goods or services Obligation is not contractual in nature
Obligation is to deliver goods or services Obligation is not contractual in nature
P11-2. Suggested solution: To be classified as a liability, the item must: i) be a present obligation; ii) have arisen from a past event; and iii) be expected to result in an outflow of economic benefits. This is an “and” situation as all three criteria must be present before a liability is recorded. The precise amount of the obligation need not be known, provided that a reliable estimate can be made of the amount due. Provisions are liabilities in which there is some uncertainty as to the timing or amount of payment.
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