[margieortega]

I need a little help with my homework... I was especially confused with #3. Please help... Thank you very much. :confused:

(Current vs. Long-term Liabilities)
Frederic Chopin Corporation is preparing its December 31, 2007, balance sheet. The following items may be reported as either a current or long-term liability.

Instructions
For each item above indicate the dollar amounts to be reported as a current liability and as a long-term liability, if any.


1. On December 15, 2007, Chopin declared a cash dividend of $2.50 per share to stockholders of record on December 31. The dividend is payable on January 15, 2008. Chopin has issued 1,000,000 shares of common stock, of which 50,000 shares are held in treasury.

Long-Term Liability
Capital Stock 2,375,000
Treasury Stock 137,500

2. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 12% interest every September 30 and mature in installments of $25,000,000 every September 30, beginning September 30, 2008.

Long-Term Liability
Bonds Payble 100,000,000


3. At December 31, 2006, customer advances were $12,000,000. During 2007, Chopin collected $30,000,000 of customer advances, and advances of $25,000,000 were earned.

Current Liability
?? 25,000

Any help would be greatly appreciated... Thanks once again.

[morgaine300]

1. You've got the amount correct for the dividend for the common stock, but it's not called Common Stock. That's the equity account representing the par value of the common shares. When dividends are declared, it goes into Dividends Payable. It will not be paid until January, so it will still be in the payable at year-end. Also, companies don't pay dividends to shares they own themselves. They gave the treasury shares, not to pay dividends on, but so you'd know to remove them from 1 million to get the outstanding shares.

2. $25 million is due within one year. (9/30/08) Current liabilities are anything due within one year. So $25 million of the bonds has to be moved from long-term into current.

3. Customer advances are what customers have paid to the company but which the company has not yet earned. i.e. liability because they still have an obligation to do whatever it is this company does. (Play the piano? :p ) So $12 million was already in there. If they got paid another $30 of "advances" then that adds to the obligation. If they earned $25 million of them, then that is no longer an obligation and is removed from the account. Leaving how much?

[margieortega]

1.
Long-term Liabilities
Dividends Payable 2,375,000


2.
Long-term Liabilities
Bonds Payable 75,000,000

Current Liabilities
Bonds Payable (due next year) 25,000,000
The book shows it this way, that's why I was a little confused with this one.


3.
Because it is no longer an obligation, it will not be reported as either long-term nor current liability but will have $17,000,000 in the account.

[morgaine300]

1.

3.
Because it is no longer an obligation, it will not be reported as either long-term nor current liability but will have $17,000,000 in the account.

Yes, in the account. In the customer advances account, which is a current liability. The information I gave you was just to determine the balance of the account. It was not meant to imply that the liability no longer exists. If there's $17 million balance in the account, then the liability still exists and it's still an obligation.