Question

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20) Erik Killmonger Company reported the following liability account balances on December 31, 2017: Accounts payable 2,000,000 Bonds payable, due 2018 4,000,000 Discount on bonds payable 400,000 Deferred tax liability 500,000 Dividend payable due on February 15, 2019 1,000,000 Income tax payable 800,000 Note payable due January 15, 2019 1,200,000 The deferred tax liability is based on temporary differences stemming from different depreciation method for financial reporting and income tax purpose. What total amount should be reported as current liabilities on December 31, 2017? A. 6,400,000 B. 7,200,000 c. 7,400,000 D. 7,600,000

Answer 1

Current liabilities are the liabilities which Company needs to pay with in 12 months or l year. → Accounts Payable is a current liability, which company needs to pay with in I year » Bonds Payable, due 2018 Generally Bonds Payable are long term liabilities, but here it is due in 2018. Hence Bonds Payable is a current liability > Discount on Bonds Payable is deducted from Bonds Payable. Discount reduces the value of → Deferred tax liability is recorded on the other long term liabilities 'Of Balance sheet. > Income Tax payable is a current liability with in an year Bonds Payable which we pay

> Dividend payable due on feb 15, 2019 is not a current liability because it is due after one year → Note Payable due Jan 15, 2019 is not a current liability because it is due after one year. Statement showing total current liabilities! Current liabilities Accounts Payable Bonds Payable, due 2018 less - Discount on Bonds Payable Income Tax Payable Amount & 2,000,000 4000000 (400000) 800000 Total current liabilities 6,400,000 Hence, Opition A - 6,400,000 is the total value of current liabilities.
Option A - 6400000 is the correct answer.