Accrued Liabilities and Payables

Question 1

What is an accrued liability?

Answer 1

When an expense is incurred but not yet paid, the company will record an accrued liability.

Question 2

On March 31, Yr 3 company received a utility bill for $936 covering service period March 1 to March 25 with payment due date of April 5. What will be the JE on March 31, yr 3? 936 will be accrued liability here. (NI, RE and E will go down and Liability will go up due to AP)

Answer 2

Utility Expense 936
Accounts Payable 936

Question 3

Also on March 31, the company prepaid rent for $685, the monthly rental fee covering the period April 1 to April 30.

Answer 3

Prepaid Rent 685
Cash 685

Question 4

Zero interest-bearing note

Answer 4

Deep discount - if no market rate is given, take the face amount subtract the amount received. This will be recorded as interest expense and it will be amortized over bond life.

Question 5

FV of ARO liability * Credit Adjusted Risk Free Rate

Question 6

Interest expense unless you are a bank is a NON-operating expense in IS. Interest payable in SOCF is an operating activity (if on debt) coz it’s legally required on DEBTS.

Answer 6

Need to be checked for SOCF

Question 7

What is an Unearned Revenue? (synonyms - deferred credit, deferred revenue, refundable deposit)

Answer 7

It is a liability. It results when cash is received in advance of providing any product or services. E.g. Downpayment (e.g. 30% of total contract price)received for installation work yet to be performed is an unearned revenue

Question 8

Salary expense is incurred when employees perform services regardless of when they are paid

Answer 8

True. L is recorded (i.e. accrued salaries payable) for salaries earned by employees but not yet paid to them.

Question 9

JE to record accrued salaries at Dec 31, Yr 1

Answer 9

Salaries Expense XXX

          Accrued Salaries payable    XXX

Question 10

Deferred compensation

Answer 10

e.g. pension

Question 11

Joe Co. sold $10,000 of merchandise to a supplier in exchange for a noninterest-bearing note due in 3 years. The market rate for a note of this type is 10%. When recording the journal entry to issue the note, Joe co. should use which of the following accounts?

Answer 11

Noninterest-bearing Notes receivable in exchange for merchandise sold

Notes receivable (Face amount) XXX
Discount on notes receivable XXX
Sales Revenue XXX

Year End Adjusting Entry

Discount on Notes Receivable XXX
Interest Revenue XXX