Question

CA13-2 (Current versus Noncurrent Classification) Rodriguez Corporation includes the following items in its liabilities at December 31, 2017.

l. Notes payable, \(25,000,000 due June 30, 2018.

2. Deposits from customers on equipment ordered by them from Rodriguez, \)6,250,000.

3. Salaries and wages payable, $3,750,000, due January 14, 2018.

Instructions

Indicate in what circumstances, if any, each of the three liabilities above would exclude from current liabilities.

Short answer

1. Current liability

2. Advance payment

3. Current liability

Step-by-step solution

Meaning of Liability

Liability is the legally payable amount to the party in the future. Examples of liabilities are accounts payable, accrued expenses, wages, and taxes payable in the future.

Detailed answer for Part 1

The amount payable $25,000,000 is due on June 30, 2018 is a current liability, and at any cost, it is payable to the party so it cannot be excluded from current liability.

Detailed answer for Part 2

A deposit of $6,250,000 was received from Rodriguez. Rodriguez is the customer, and he paid the deposit for the order of equipment so that deposit is the advance payment for selling the equipment and that deposit will adjust toward the due payment of sell of equipment to Rodriguez Corporation in future so it would be excluded from current liabilities.

Detailed answer for Part 3

$3,750,000 is the salary payable to the staff that is due on January 14, 2018 is current liabilities of Rodriguez Corporation. Rodriguez Corporation will have to pay this salary to staff so salary would not be excluded from current liabilities.