Asked by lauren campbell on May 20, 2024
Verified
Faulkner Company has the following selected accounts after posting adjusting entries: Accounts Payable $45,000 Notes Payable, 3-month 70,000 Accumulated Depreciation-Equipment 14,000 FlCA Taxes Payable 27,000 Notes Payable, 5-year, 8%30,000 Warranty Liability 29,000 Payroll Tax Expense 6,000 Interest Payable 3,000 Mortgage Payable 200,000 Sales Taxes Payable 16,000\begin{array}{lr}\text { Accounts Payable } & \$ 45,000 \\\text { Notes Payable, 3-month } & 70,000 \\\text { Accumulated Depreciation-Equipment } & 14,000 \\\text { FlCA Taxes Payable } & 27,000 \\\text { Notes Payable, 5-year, } 8 \% & 30,000 \\\text { Warranty Liability } & 29,000 \\\text { Payroll Tax Expense } & 6,000 \\\text { Interest Payable } & 3,000 \\\text { Mortgage Payable } & 200,000 \\\text { Sales Taxes Payable } & 16,000\end{array} Accounts Payable Notes Payable, 3-month Accumulated Depreciation-Equipment FlCA Taxes Payable Notes Payable, 5-year, 8% Warranty Liability Payroll Tax Expense Interest Payable Mortgage Payable Sales Taxes Payable $45,00070,00014,00027,00030,00029,0006,0003,000200,00016,000 Instructions
(a) Prepare the current liability section of Faulkner Company's balance sheet assuming $25000 of the mortgage is payable next year. (List liabilities in magnitude order with largest first.)
(b) Comment on Faulkner 's liquidity assuming total current assets are $450000.
Current Liability
A company's debts or obligations that are due within one year, including accounts payable, short-term loans, and taxes payable.
Warranty Liability
The obligation a company assumes when it guarantees the condition of its product and agrees to repair or replace defective products.
FICA Taxes Payable
Liabilities owed by an employer to the federal government for Federal Insurance Contributions Act taxes, typically for Social Security and Medicare.
- Gain insights into the idea of current liabilities and their management in the context of finance.
- Differentiate among various kinds of benefits after retirement and their recognition in financial reports.
Verified Answer
RM
Robert MountMay 24, 2024
Final Answer :
(a)
FAULKNER COMPANY Current Liabilities Notes payable, 3-month $70,000 Accounts payable 45,000 Warranty liability 29,000 FICA taxes payable 27,000 Long-term debt due within one year 25,000 Sales taxes payable 16,000 Interest payable 3,000‾ Total Current Liabilities $215,000‾‾\begin{array}{c}\text { FAULKNER COMPANY}\\\begin{array}{lr}\text { Current Liabilities }\\ \text { Notes payable, 3-month } & \$70,000 \\\text { Accounts payable } & 45,000 \\\text { Warranty liability } & 29,000 \\\text { FICA taxes payable } & 27,000 \\\text { Long-term debt due within one year } & 25,000 \\\text { Sales taxes payable } & 16,000 \\\text { Interest payable } & \underline{3,000 }\\\quad \text { Total Current Liabilities } & \underline{ \underline{ \$ 215,000 }}\\\end{array}\end{array} FAULKNER COMPANY Current Liabilities Notes payable, 3-month Accounts payable Warranty liability FICA taxes payable Long-term debt due within one year Sales taxes payable Interest payable Total Current Liabilities $70,00045,00029,00027,00025,00016,0003,000$215,000 (b) The liquidity position looks favorable. If all current liabilities are paid out of current assets there would still be $235000 of current assets. The current assets are more than twice the current liabilities and it appears as though Faulkner Company has sufficient current resources to meet current obligations when due.
FAULKNER COMPANY Current Liabilities Notes payable, 3-month $70,000 Accounts payable 45,000 Warranty liability 29,000 FICA taxes payable 27,000 Long-term debt due within one year 25,000 Sales taxes payable 16,000 Interest payable 3,000‾ Total Current Liabilities $215,000‾‾\begin{array}{c}\text { FAULKNER COMPANY}\\\begin{array}{lr}\text { Current Liabilities }\\ \text { Notes payable, 3-month } & \$70,000 \\\text { Accounts payable } & 45,000 \\\text { Warranty liability } & 29,000 \\\text { FICA taxes payable } & 27,000 \\\text { Long-term debt due within one year } & 25,000 \\\text { Sales taxes payable } & 16,000 \\\text { Interest payable } & \underline{3,000 }\\\quad \text { Total Current Liabilities } & \underline{ \underline{ \$ 215,000 }}\\\end{array}\end{array} FAULKNER COMPANY Current Liabilities Notes payable, 3-month Accounts payable Warranty liability FICA taxes payable Long-term debt due within one year Sales taxes payable Interest payable Total Current Liabilities $70,00045,00029,00027,00025,00016,0003,000$215,000 (b) The liquidity position looks favorable. If all current liabilities are paid out of current assets there would still be $235000 of current assets. The current assets are more than twice the current liabilities and it appears as though Faulkner Company has sufficient current resources to meet current obligations when due.
Learning Objectives
- Gain insights into the idea of current liabilities and their management in the context of finance.
- Differentiate among various kinds of benefits after retirement and their recognition in financial reports.