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CURRENT AND NONCURRENT LIABILITIES Reinforce understanding of amounts reported on the financial statements for Current purpose: and noncurrent liabilities. BALANCE SHEET ACCOUNTSDec 31, Year 5 Accounts payable Warranty liability Income taxes payable Current portion of long-term debt Total current liabilities Deferred income taxes Post-retirement benefit liabilities Bonds payable, 8%, mature in 2030 Bond discount Long-term debt INCOME STATEMENT ACCOUNTSYear 5 Sales revenue Post-retirement benefit expense Warranty expense Interest expense (related to the bond ayable ($ in millions) $ 6,245 510 389 271 7,415 51 2,390 2,500 (156) 2,344 631 $ 50,000 698 275 220 03 Refer to the information presented above to answer the following questions. QI Current Noncurrent) liabilities are obligations due within one year or within the company's normal operating cycle if longer. Obligations due beyond that time are classified as (current I noncurren liabilities. Q2 The purchase of inventory will usually increase the accounts notes / mortgage) payable account. Q3 Warranty costs related to Year 5 sales total ($275 / $510 / 78 million and warranty costs expected to be incurred in the future total ($275 / $510 / $785) mi on. These amounts are (known / estimated). Q4 There is ($271 / $631 / $902) million of total debt outstanding (not including bonds). Of this amount, the company plans to pay ($271 / $631 / $902) million during the following year and pay ($271 / $631 / $902) million in later years. Q5 When bonds payable are issued, they are recorded at their (face / present) value. After issuance, they are reported at their (present / fair market / amortized) value. The above bond has a current carrying value of $ million that will continue to (increase / decrease) until maturity. At maturity, the issuing corporation will pay $ million to the holder of the bond. Q6 The bond payable was issued at a discount because the market interest rates were (higher than I equal to / lower than) 8%, and therefore, the actual cost of borrowing is (greater than / equal to I less than) 8%. This year's interest payment totaled ($156 / $200 / $220 / $250) million while this year's cost of borrowing totaled ($156 / $200 / $220 / $250) million. Q7 Post-retirement benefits are expensed and recorded as a liability in the year of (employment I retirement). This is an application of the (matching / cost / reliability) principle. Specific Accounts Page 198 Chapter 6