Problem 10-1 Identification of Current Liabilities, Contingencies, and Commitments

Common types of current liabilities, contingencies, and commitments follow:

Accounts payable

Bank loans and commercial paper

Notes payable

Dividends payable

Sales and excise taxes payable

Current portion of long-term debt

Payroll liabilities

Unearned revenues

Income taxes payable

Property taxes payable

Promotional costs

Product warranty liability

Vacation pay liability

Contingent liability

Commitment

For each of the following statements, identify the type of current liability, contingency, or commitment to which it gives rise or with which it is most closely associated:

1. A company agrees to replace parts of a product if they fail.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 1
2. An employee earns one day off for each month worked.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 2
3. A company signs a contract to lease a building for five years.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 3
4. A company puts discount coupons in the newspaper.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 4
5. A company agrees to pay insurance costs for employees.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 5
6. A portion of a mortgage on a building is due this year.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 6
7. The board of directors declares a dividend.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 7
8. A company has trade payables.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 8
9. A company has a pending lawsuit against it.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 9
10. A company arranges for a line of credit.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 10
11. A company signs a note due in 60 days.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 11
12. A company operates in a state that has a sales tax.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 12
13. A company earns a profit that is taxable.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 13
14. A company owns buildings that are subject to property taxes.	SelectAccounts payableBank loans and commercial paperNotes payableDividends payableSales and excise taxes payableCurrent portion of long-term debtPayroll liabilitiesUnearned revenuesIncome taxes payableProperty taxes payablePromotional costsProduct warranty liabilityVacation pay liabilityContingent liabilityCommitmentItem 14

Of the items listed from a to o above, which ones would you not expect to see listed on the balance sheet with a dollar amount? SelectOnly current liabilitiesOnly contingent liabilitiesOnly commitmentsBoth current liabilities and contingent liabilitiesBoth commitments and contingent liabilitiesBoth commitments and current liabilitiesItem 15 Of those items that would be listed on the balance sheet with a dollar amount, which ones would you consider to involve the most judgment or discretion on the part of management? The input in the box below will not be graded, but may be reviewed and considered by your instructor.