. Current liabilities: Are the obligations that are reasonably expected to be liquidated either through the use
Of current assets or the creation of other current liabilities, this concept include :
1- Payables resulting from the acquisition of goods and services: accounts payable, wages payable, taxes payable and so on.
2- Collections received in advance for delivery of goods or performance of services such as unearned rent revenue or unearned subscriptions revenue.
3- Other liabilities whose liquidation will take place within the operating cycle such as short-term obligations arising from purchase.

Balance Sheet
Presentation of Current
Current liabilities

Short-term debt $ 22,500,000
Accounts payable-public 240,400,000
Accounts payable to unconsolidated titillates 18,200,000
Advances from customers on contracts 161,100,000
Accrued compensation and benefits 169,400,000
Accrued warranty costs 34,100,000
Accrued taxes other than income taxes 21,900,000
Accrued interest 28,300,000
Other accrued liabilities 151,000,000
Income taxes payable 112,200,000
Current portion of long term debt 12,400,000

Total current liabilities 971,500,000

. Long – Term liabilities: Are obligations that are not reasonably expected to be liquidated within the
Normal operating cycle.
.Long – term liabilities are of three types:
1- Obligation arising from specific financing situations such as the issuance of bonds.
2- Obligations arising from the ordinary operations of the enterprise, such as pension obligation and deferred income tax liabilities.
3- Obligation that are dependent upon the occurrence of one or more future events to confirm the amount payable such as service or product warranties and other contingencies.
Balance Sheet
Presentation of
Long-Term Debt
Total current liabilities $ 978,109,000
Long-term debt (See note) 254,312,000
Obligations under capital leases 252,618,000
Deferred income taxes 57,167,000
Other non-current liabilities 127,321,000

Note: Indebtedness. Debt consists of:
9.5% Senior notes, due in annual installments of $10,000,000 $ 40,000,000
Mortgages and other notes due through 2011 (average interest rate
Of 9.9%) 107,604,000
Bank borrowings at 9.7% 67,225,000
Commercial paper at 9.4% 100,102,000

Less: Current portion (60,619,000)

Total long-term debt $ 254,312,000

. A contingency: it is the existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.
. Loss contingency: contingent liabilities are obligations that are dependent upon the occurrence or non occurrence of one or more future events to confirm either the amount payable, the payee, the date payable, or its existence.
. Some terms are used to identify some areas with in the range and assign the following meanings:
1. Probable: Accrue & Disclosed
. Not estimable – Disclosed only . Estimable With in range – Accrue Minimum of range
2. Reasonably possible – Disclosed only
3. Remote – Neither Accrued nor Disclosed
Accounting Treatment of Loss Contingencies
Usually not May be
Accrued Accrued Accrued
Loss Related to
1. Collectibility of receivables X
2.obligations related to product warranties and product defects X
3.Premiums offered to customers X
4. Risk of loss or damage of enterprise property by fire , explosion
, or other hazards X
5. General or unspecified business risks X
6. Risk of loss from catastrophes assumed by property and casualty
insurance companies including reinsurance companies X
7. Threat of expropriation of assets 8. Pending or threatened litigation X
9.Actual or possible claims and assessments X
10. Guarantees of indebtedness of others X
11. Obligations of commercial banks under" standby letters of credit " X
12. Agreements to repurchase receivables ( or the related property)
that have been sold X
. should be accrued when both criteria are met ( probable and reasonable estimable)
.Estimated amounts of losses incurred prior to the balance sheet date but settled subsequently should be accrued as of the balance sheet dates.

1. Gain contingency: Are claims r rights to receive assets whose existence is uncertain but which may become valid eventually .
2.Gain contingence has some characteristics as :
3. Never accrue
4. May Disclose
2) Estimated & Accrued Amounts:
** Money 1st - Goods or Services 2nd
. Expenses – Prepaid
. Revenues – Unearned
** Goods or Services 1st – money 2nd
. Expenses – Accrued
. Revenues – Receivable
1) Revenue Items
Calculate Amount Earned or Amount Collected .
1) Determine Change in Accrual Items:
Credit Debit
Decrease Increase Revenue Receivable
Increase Decrease Unearned Revenue
2) Prepare Journal Entry
Cash XXX
Revenue Receivable XXX or XXX
Unearned Revenue XXX or XXX
Revenue XXX
3) If Amount Collected is given that is the Debit to Cash and the Amount required to Balance the entry is the Amount
4) If the Amount Earned is given that is the Credit to Revenues and the Amount Required to Balance the Entry is the
Amount Collected.
II) Expense Items
Calculated Amount Incurred or Amount Paid
1) Determine Changes in Accrual Items
Credit Debit
Decrease Increase Prepaid Expense
Increase Decrease Accrued Expense
2) Prepare Journal Entry
Expense XXX
Prepaid Expense XXX or XXX
Accrued Expense XXX or XXX
Cash XXX
3) If Amount Paid is given. That is the Credit to Cash and the Amount required to Balance the entry is the Amount
4) If the Amount Incurred is given, that is the Debit to Expense and the Amount Required to Balance the Entry is the
Amount Paid.
3) Premiums and Coupons: Premiums are offered by companies in return for Box tops, certificates, labels, or wrappers. Amore recent marketing innovation is the cash Rebate , in which the buyer can obtain by returning the store receipt , a rebate coupon
And a universal Product Code to the manufacturer

The following example illustrates the accounting treatment according a premium offer Fluffy cackemix Company offered its customers a large non-breakable
Mixing bowl in exchange for 25 cents, and 10 box tops. The mixing bowl costs Fluffy Cake mix company 75 cents, and the company estimates that 60% of the box tops will be redeemed.
The premium offer began in June 2001, and resulted in the following transactions and entries during 2001.

To record purchase of 20,000 mixing bowls at 75 cents each:

Inventory of premium mixing bowls 15,000
Cash 15,000

To record sales of 300,000 boxes of cake mix at 80 cents:

Cash 240,000
Sales 240,000

To record the actual redemption of 60,000 box tops, the receipt of 25 cents per 10 box tops, and the delivery of the mixing bowl.
Cash (50,000 /10) * $0, 25 1,500
Premium expense 3,000
Inventory of Premium Bowls 4,500
Computation (50,000 / 10) * $0, 75 = $4,500
To record end of Period adjusting entry for estimated Liability for outstanding Premium offers (box tops):
Premium Expense 6,000
Estimated Liability for Premiums 6,000
Total box tops sold in 2001 300,000
Total estimated redemption (50%) 130,000
Box tops redeemed in 2001 60,000

Estimated redemption in 2001 120,000
Cost of estimated clains outstanding
(120,000 / 10 ) * ( $0,75 – $0,25 ) = $6,000
The December 31 , 2001 , balance sheet of Fluffy Cakemix Company will report an Inventory of Premium Mixing Bowls of $10,500 as current assets and Estimated Liability for Premiums of $6,000 as a current liability .
The 2001 income statement will report a $9,000 Premium Expense among selling expenses .
4) Warranties :
a) A warranty is a written gurantee of the integrity of a product or service and an undertaking by the seller to repair or repla a product it is customarily offered for a limited such as 90 days .
b) If the incurrence of the warranty expense is proobable , the amount is material , under the expense warranty approach , the total estimated warranty cost is debited to operating expense and credited to liability in the year of sale .
This method is accepted when the warranty is not seprable .
c) The sales warranty approach is appropriate when the warranty and the product are seprate , under this method, the warranty revenue is deferred and amortized over the term of the contract , usually on the straight line method .

** Warranty Expense
* % warranty Costs
= Expense for Period
**Warranty Liability
Estimated Warranty Liability
Beg. Bal.
End Bal.

Illustration of Expense Warranty Approach . to illustrate the expense warranty , methods , assume that the denson Machinry Company begins production on a new machine in July 2001 , and sells 100 units at $5,000 each by its year-end , December 31 , 2001 . Each machine under warranty for one year and the company has etimated , from past experince with a similar machine , that the warranty cost will probably average $200 per unit . Further , asa result of parts replasements and services rendered in compliance with machinry warranties , the company incurs $4,000 in warranty costs in 2001 and $16,00 in 2002 .
1)Sale of 100 machine at 55,000 each , July through December 2001 :
Cash or Accounts Receviable 500,000
Sales 500,000
2) Recognition of warranty expense , July through December 2001 :
Warrantyexpense 4,000
Cash , Inventory , Account payroll 4,000
( warranty costs incurred )
Warranty Expense 15,000
Estimated Liability under Warranties 15,000
(To accrue estimated warranty costs )
The December 31 , 2001 balance sheet would report Estimated Liability Under Warranties as a current liability of $16,000 ,
And the income statement for 2001 would report Warranty Expense of $20,000 .
3) Recognition of warranty costs incurred in 2002 ( on 2001 machinrey sales ) :
Estimated Liabillity under Warranties 16,000
Cash , Inventory , or Accrued Payroll 16,000
(Warranty costs incurred )
. Misceellaneous Liabilities
1) Refinancing Liabilities : To be excluded from current Liabilities
( 2 Rquirments )
. Company Intends to Refinance on long term Basis
. Company can Demonstrate the ability
The ability to refinance can be demonstrate in either tow ways :
. Refinance on long-term Basis after balance sheet date but befor Issuance .
. Enter into firm agreement with lender having ability to Provide Long-term Finance .
II) Trouble Debt Restructuring
Transfer Property to Creditor
Liability (Amount Forgiven ) XXX
Gain or Loss on Disposal XXX or XXX
Asset(Carrying Value ) XXX
Extraordinary Gain or Restructure XXX
> Gain or Loss = Fair Value – Carrying Value
on Disposal of asset of Debit
> Extraordinary Gain = Fair Value – Carrying Value
on Restructure of Asset of Debit
III) Issuance of Equity
Liability (Amount Forgiven ) XXX
Common Stock (Par Value ) XXX
APIC (Based on Fair Value ) XXX
Extraordinary Gain on Restructure XXX
> APIC =Fair Value of Stock Issued – Par Value of Stock Issued
> Extraordinary Gain = Fair Value – Carrying Value
on Restructure of Stock of Debit
IV) Modification of Terms
Total Payment Under New Terms :
. If > Carrying Value of Debit No Adjustment
. If < Carrying Value of Debit Difference is Extraordinary Gain .