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Chapter 11: Q2RQ (page 603)

What is a current liability? Provide some examples of current liabilities.

Short Answer

Expert verified

Current liabilities are short-term liabilities that must discharge within a year. Current liabilities are significant because they restrict the firm's cash flow, making it crucial for the company to own sufficient liquid assets to support liquidity.

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01

Meaning of Current Liabilities

Current liabilities refer to an individual or business entity's short-term liability that must settle within a year.

02

Examples of current liabilities

Accounts payable, short-term debt,notes payableand unpaid taxesare a few examples of current obligations or current liabilities.

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Most popular questions from this chapter

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).

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.

How is the times-interest-earned ratio calculated, and what does it evaluate?

What payroll taxes is the employer responsible for paying?

How might a business use a payroll register?
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