Question

The 16-Bit Corporation, whose December 31, 2019 year-end financial statements were issued February 16, 2020, had the following transactions. For each transaction, indicate the amount that 16-Bit would show as a current liability on its December 31, 2019 balance sheet under US GAAP. Indicate $ “0” if no amount would be shown as a current liability.

Employees at 16-Bit had vacation time (compensated absences) worth a total of $350,000 that had not been taken as of December 31, 2019. 16-Bit’s policy does not allow for vacation time to roll over to the next year. Instead, during the first pay period of the following year, 16-Bit's employees are paid a cash bonus equal to 50% of the unused vacation time.

Answer 1

Current liabilities are liabilities payable within one year from balance sheet date. The vacation time is not allowed to roll over and instead employees are paid 50% cash bonus of unused vacation time which is paid within next year from end of financial year.

Current liabilities for unused vacation time would be 50% of $350,000 which is $175,000

Thus, current liabilities of $175,000 would be reported.