Question

Ime Value of Money Exercise 9-2 Current Liabilities LOI The following items represent liabilities on a firm's balance sheet: a. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed. b. An amount of money owed to a creditor on a note due April 30, 2018. c. An amount of money owed to a creditor on a note due August 15, 2019. d. An amount of money owed to employees for work performed during the last week in December e. An amount of money owed to a bank for the use of borrowed funds due on March 1, 2018. f. An amount of money owed to a creditor as an annual installment payment on a ten- year note. g. An amount of money owed to the federal government based on the company's annual income. Required 1. For each item, state whether it should be classified as a current liability on the December 31, 2017, balance sheet. Assume that the operating cycle is shorter than one year. If the item should not be classified as a current liability, indicate where on the balance sheet it should be presented. 2. For each item identified as a current liability in part (1), state the account title that is normally used to report the item on the balance sheet. 3. Why would an investor or a creditor be interested in whether an item is a current or a long term liability?

Answer 1

14 15 a 16 Classification Current liability Current liability Long-term liability Current liability Current liability Current liability and Long-term liability Current liability 22 23 g 24 25 2) 26 29 30 d Classification Current liability Current liability Long-term liability Current liability Current liability Current liability Account Title Accounts Payable Notes Payable Notes Payable Wages Payable Interest Payable Current Portion of Long-Term Debt and Long-Term Debt Taxes Payable 31 e 32 F and 33 34 35 g Long-term liability Current liability

Investors want to know this informaion because it enables them to predict the timing of future cash flows and current liabilities will be satisfied by the use of current assets whereas long term liabilities cannot be satisfied by the use of current assets.