Question

Explain how to determine a liability. Distinguish between current and long-term liabilities as well as the reporting requirements for each.

Evaluate business events for classification as a contingency in the financial statements. Record journal entries needed for bonds issued and sold at a premium and discount.

Answer 1

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Explain how to determine a liability.

Liability are obligation on the corporation for services or goods received. When corporation receives goods or services or commit something the it has to record a liability.

Distinguish between current and long-term liabilities as well as the reporting requirements for each.

Current liabilities are those obligations which are payable by the corporation within the operating cycle or next 365 days like accounts payable, accrued expense etc.

Long-term liabilities are those obligations which are payable by the corporation after operating cycle or after 365 days like bonds payable, long term borrowings etc.

Evaluate business events for classification as a contingency in the financial statements.

There are three possible scenarios for contingencies:

Record a contingency when it is probable that loss will occur and the amount can be estimated reasonably.

Disclose the contingency when it is possible but not probable or if it is probable that loss will occur than the amount cannot be estimated reasonably.

No treatment is done if chances of contingency is remote.

Record journal entries needed for bonds issued and sold at a premium and discount.
Accounts	Debit $	Credit $
Bonds issued at a premium
Cash	XXX
Premium on bonds payable		XXX
Bonds payable		XXX
Bonds issued at a discount
Cash	XXX
Discount on bonds payable	XXX
Bonds payable		XXX