Prepare The Liabilities Section Of Obrian's Balance Sheet

Prepare the Liabilities Section Of Obrians Balance Sheet Using The Fo

Prepare the liabilities section of O'Brian's balance sheet using the following information: Accounts payable $157,000 Notes payable (due May 1, 2018) $20,000 Bonds payable (due 2021) $900,000 Unearned rent revenue $240,000 Discount on bonds payable $41,000 FICA taxes payable $7,800 Interest payable $40,000 Notes payable (due 2019) $80,000 Income taxes payable $3,500 Sales taxes payable $1,700 Show work on the Week 3 Excel ® spreadsheet.

Paper For Above instruction

Introduction

The accurate preparation of the liabilities section in a company's balance sheet is essential for presenting a clear picture of its financial obligations. For O'Brian, a detailed compilation of short-term and long-term liabilities based on available data provides stakeholders with insight into the company's financial health and liquidity. This paper aims to construct the liabilities section effectively, considering all provided obligations along with relevant disclosures such as discounts on bonds payable.

Liabilities Section of O'Brian’s Balance Sheet

The liabilities section of the balance sheet encompasses all debts and obligations that the company owes to external parties. Generally, these are classified as current liabilities (due within one year) and non-current liabilities (due after one year). Using the provided data, we sort and compute the liabilities properly.

Current Liabilities

Current liabilities include those due within the upcoming one-year period. For O'Brian, the following liabilities qualify:

  • Accounts payable: $157,000
  • Notes payable (due May 1, 2018): $20,000
  • Unearned rent revenue: $240,000
  • FICA taxes payable: $7,800
  • Interest payable: $40,000
  • Notes payable (due 2019): $80,000
  • Income taxes payable: $3,500
  • Sales taxes payable: $1,700

These liabilities are expected to be settled within the near term.

Non-Current Liabilities

Long-term liabilities include obligations not due within the upcoming year:

  • Bonds payable (due 2021): $900,000

When presenting bonds payable, the discount on bonds payable must be considered. Bonds payable are reported net of the discount, which reduces the carrying amount of the liability:

  • Gross bonds payable: $900,000
  • Less: Discount on bonds payable: $41,000
  • Net bonds payable: $859,000

Constructing the Liabilities Section

Integrating all the computations, the liabilities section of O'Brian’s balance sheet appears as follows:

Liabilities

Current Liabilities
  • Accounts payable: $157,000
  • Notes payable (due May 1, 2018): $20,000
  • Unearned rent revenue: $240,000
  • FICA taxes payable: $7,800
  • Interest payable: $40,000
  • Notes payable (due 2019): $80,000
  • Income taxes payable: $3,500
  • Sales taxes payable: $1,700
Non-Current Liabilities
  • Bonds payable, net of discount: $859,000

Conclusion

The liabilities section of O'Brian's balance sheet provides a comprehensive view of both current obligations and long-term commitments. Proper accounting for discounts on bonds payable ensures accurate reflection of the company's financial position. This structured presentation enhances clarity and assists stakeholders in assessing the company's liquidity and solvency.

References

  • Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management. Cengage Learning.
  • Higgins, R. C. (2018). Analysis of Financial Statements. McGraw-Hill Education.
  • Gibson, C. H. (2019). Financial Reporting & Analysis. Cengage Learning.
  • Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2020). Introduction to Financial Accounting. Pearson.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory. Wiley.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial Accounting. Wiley.
  • Accounting Standards Codification (ASC) Topic 405 - Liabilities. Financial Accounting Standards Board.
  • Governmental Accounting Standards Board (GASB) Statements on Long-term Liabilities.
  • Investopedia. (2023). Liabilities. https://www.investopedia.com/terms/l/liability.asp
  • The Balance Sheet: Definition, Format, and How to Prepare. (2023). Corporate Finance Institute.

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