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Rios Raft Company had the following liabilities.

a. Accounts Payable

b. Note Payable due in 3 years

c. Salaries Payable

d. Note Payable due in 6 months

e. Sales Tax Payable

f. Unearned Revenue due in 8 months

g. Income Tax Payable

Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).

Short Answer

Expert verified

The note payable due in 3 years is the only long-term liability and the rest are current liabilities.

Step by step solution

01

Current Liability

A current liability is an obligation that is payable within one year or within the one accounting cycle. It is the liability relating to operating activity or working capital.

From the given list following are the current liabilities:

a) Accounts Payable

c) Salaries payable

d) Notes payable due in 6 months

e) Sales tax payable

f) Unearned revenue due in 8 months

g) Income tax payable

02

Long-term liability

Long-term liability is the obligation that is payable for more than a year or more than one accounting cycle. This liability arises due to the financing activity and needs.

From the given list only (b) Notes payable due in 3 years in the long term liability.

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Most popular questions from this chapter

Freeman Motors, a motorcycle manufacturer, had the following contingencies.

a. Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman’s attorneys estimate the potential loss will be \(4,500,000.

b. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous.

c. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be \)75,000.

Determine the appropriate accounting treatment for each of the situations Freeman is facing.

The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:

2017

Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.

29 Recorded the week’s sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.

Feb. 5 Sent the last week’s sales tax to the state.

Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.

Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.

Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.

31 Accrued interest on all outstanding notes payable.

2018

Feb. 28 Paid the six-month 10% note, plus interest, at maturity.

Journalize the transactions in Plymouth’s general journal. Explanations are not required.

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo’s total expense for 2018 related to payroll?

Lucy Rose works at College of Fort Worth and is paid $12 per hour for a 40-hour workweek and time-and-a-half for hours above 40.

Requirements

1. Compute Rose’s gross pay for working 60 hours during the first week of February.

2. Rose is single, and her income tax withholding is 15% of total pay. Rose’s only payroll deductions are payroll taxes. Compute Rose’s net (take-home) pay for the week. Assume Rose’s earnings to date are less than the OASDI limit.

3. Journalize the accrual of wages expense and the payment related to the employment of Lucy Rose.

Coltrane Company has a \(5,000 note payable that is paid in \)1,000 instalments over five years. How would the portion that must be paid within the next year be reported on the balance sheet?

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