AuthorTopic: Help for this question
applebee
@2002-10-18 17:23:00
Which of the following is NOT an example of a current liability as of Dec 31,1999?
A. Interest due to creditors for 2000, to be paid in 2000
B. The portion of long term debt due in 2000
C. Management fees collected in advance in 1999 but to be earned in 2000
D. Warranty liability for products carrying a two year warranty and sold during 1999

I thought the correct answer should be D, but the answer says it should be A??Why?

Could someone help? ( This question is an exam type question in study session for accounting - basic concept.
sandipcfa
@2002-10-21 14:05:00
Answer D is incorrect because in this case current operating cycle for this warranty liability is two years. Remember, for current assets and current liabilities, the current period is one year or the current normal operating cycle, whichever is longer.
Answer A is correct because interest is due to creditors in 2000. So it will come under current liabilities for the year ended on Dec 31, 2000, not 1999.
applebee
@2002-10-21 16:04:00
SANDY,

See, that is just what I thought.

Look at the question, which one is NOT an example of currently liability.

So D is not current liability while A is under current.

Right?
sandipcfa
@2002-10-22 14:04:00
Yes, it is right.
rjdel
@2002-10-25 03:08:00
A is not a current liability because it refers to interest. If it were loan principal due the following year, then it would be a current liability
curious
@2002-10-25 06:13:00
well A is not curreent liability, rather it is an expense related to 2000 and had to be paid during the same exercice. this is the best answer .
applebee
@2002-10-28 17:17:00
so then where how we catergarize "interest payable", if not in current liability? Isn't it like" wage payable","tax payable"???

Thanks guys.
photoshop
@2002-11-02 12:39:00
I agree with sandipcfa.

As the interest covers the period of loans borrowed in 2000, it should not be treated as the liability of the company, as it has not incurred as at Dec 31, 1999. Therefore the financial statement at that time should not reflect the interest at all, whether in B/S or P/L.

I think we have complicated the problem, as it is only a basic concept question of accounting.
taja
@2002-11-26 18:16:56
My query is based on Question 3 of the Basic Questions for "explain how to report the income effects of of discontinued operations.....
."
I thought the answer would have been A....but it was D.
Help! i do not understand the logic behind that answer....i thought you had to account for the change.

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