Question

For each of the following transactions that occurred during the year, indicate the dollar amount to be reported as a current liability as of December 31, 2020. (Enter 0 for amounts if no current liability is to be reported. Do not leave any answer field blank.)

						Reported as
(a)		On December 20, 2020, a former employee filed a legal action against Nash for $108,140 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote.		$		Not a Current LiabilityCurrent Liability
(b)		Bonuses to key employees based on net income for 2020 are estimated to be $188,700.		$		Current LiabilityNot a Current Liability
(c)		On December 1, 2020, the company borrowed $972,000 at 8% per year. Interest is paid quarterly.		$		Current LiabilityNot a Current Liability
(d)		Accounts receivable at December 31, 2020, is $10,111,700. An aging analysis indicates that Nash’s expense provision for doubtful accounts is estimated to be 3% of the receivables balance.		$		Not a Current LiabilityCurrent Liability
(e)		On December 15, 2020, the company declared a $2.40 per share dividend on the 40,160 shares of common stock outstanding, to be paid on January 5, 2021.		$		Current LiabilityNot a Current Liability
(f)		During the year, customer advances of $175,000 were received; $59,700 of this amount was earned by December 31, 2020.		$		Not a Current LiabilityCurrent Liability

Answer 1

Current Liability is the one which is immediately payable within a year or less than that or within the Company's normal Operating Cycle

a) In this Case on Dec 20,2020,a former employee has filed a case against the company and the likelihood of payment to the employee is remote .So it is not necessary to classify it as Current Liability.

when the likelihood is remote it is not necessary to classify it even as a contingent liability

NOT A CURRENT LIABILITY

b) Bonuses to Key employees based on Net Income for 2020 is a current liability as it accrues during the year and payable as early as possible.

IT IS A CURRENT LIABILITY ($188700)

Bonus expenses $188700

Bonus Payable $ 188700

c) Company borrowed $ 972000 at interest rate 8% payable quarterly.One month Interest is accrued and due as at the end of financial year ending December 31,2020

IT IS A CURRENT LIABILITY(because interest is to be paid in the immediate 4 months)

Interest Expenses A/c $ 6480

Interest Expenses payable(Current Liability) $ 6480

Note: $972000*8/100*1/12=$6480 (one month interest pertining to December 2020)

d) Provision for Bad and Doubtful Debts

Bad debts is charged against profit and adjusted against balance of receivables at the end of the year

Provisions for doubtful debts are not payable but becomes adjustable with receivables to ascertain bad debts for the year.It is shown in Current Liabilities under the head Provisions

IT IS A CURRENT LIABILITY

in this case provision to be made is $ 303351 which is $10,111,700*3/100=$303351

e) Dividend declared before the end of the year,Dec 31,2020 is to be adjusted against Shareholder's Equity and if not paid before the reporting date has to be classified as Current Liability

IT IS A CURRENT LIABILITY

Dividend payable will come to $96384 which is $2.40*40160 shares

f) Customer Advances received is a Current liability to the extent services /goods to be rendered is pending.

IT IS A CURRENT LIABILITY

When amount is received in advance for services to be delivered in future it needs to be classified as a liability

In this case $115300 is pending balance for which services/goods are yet to be delivered as at Dec 31,2020 So ($175000-$59700) =$ 115300 becomes Current liability