Question

Read Case 10.1 in “Critical Thinking Cases” on p. 482 of Financial Accounting. (Shown Below)

Post a response in 150 to 200 words to the following prompts, providing specific examples to support your responses:

• Briefly explain what you believe to be nature of each of these liabilities.
• How do the liabilities affect the financial statements of the organization?

"CASE 10.1

The Nature of Liabilities

Listed are seven publicly owned corporations and a liability that regularly appears in each corporation’s balance sheet.

    Wells Fargo & Company (banking): Deposits--interest bearing

    The New York Times Company (newspaper publisher): Unexpired subscriptions

    The Hollywood Park Companies (horse racing): Outstanding mutuel tickets

    American Greetings (greeting cards and gift wrap products manufacturer): Sales returns

    Wausau Paper Mills Company (paper manufacturer): Current maturities of long-term debt

    Club Med., Inc. (resorts): Amounts received for future vacations

    Apple Computer, Inc. (computer manufacturer): Accrued marketing and distribution

    General Motors Corporation (automobile manufacturer): obligation for postretirement benefits"

Answer 1

Particulars	Nature of Liability
Wells Fargo & Company (banking): Deposits--interest bearing	Deposits are accepted from customers and bank pays interest on the same. They can be Current or Non Current Liability depending upon the duration. If duration is greater than 12 months, then the same shall be Non Current Liability.
The New York Times Company (newspaper publisher): Unexpired subscriptions	Unexpired subscriptions can be Current or Non Current Liability depending upon the duration. If duration is greater than 12 months, then the same shall be Non Current Liability.
The Hollywood Park Companies (horse racing): Outstanding mutuel tickets	Outstanding Mutuel Tickets shall be Current Liabilities
American Greetings (greeting cards and gift wrap products manufacturer): Sales returns	Sales Returns shall be deducted from Sales to present Net Sales.
Wausau Paper Mills Company (paper manufacturer): Current maturities of long-term debt	The part of long term debt that is due in next 12 months shall be current maturities of long term debt
Club Med., Inc. (resorts): Amounts received for future vacations	This is Unearned Revenue and these can be current liability if it is expected that vacations shall take place within next 12 months.
Apple Computer, Inc. (computer manufacturer): Accrued marketing and distribution	The marketing and distribution expenses is payable by the company generally in short term, hence it should be current liability
General Motors Corporation (automobile manufacturer): obligation for post retirement benefits"	These are employee benefits and generally classified as Non Current Liability

Effect of Liability in a Finacial Statement: In a Financial Statement, Equity + Liability = Assets. Hence, any increase in liability shall lead to either decline in equity of increase in another asset in the financial statement