Tets 2 Chapter 3 Discussion 1
Chapter 3 Part 1 of 3
1) Identify and describe the two major sources of current liabilities.
The two major source of liabilities, for both current and noncurrent liabilities, are operating and financing activities. Current liabilities of an operating nature—such as accounts payable and operating expense accruals—represent claims on resources from operating activities. Current liabilities such as notes payable, bonds, and the current maturities of long-term debt reflect claims on resources from financing activities.
2) Identify the major disclosure requirements for financing-related current liabilities.
The major disclosure requirements (in SEC FRR, Section 203) for financing-related current liabilities such as short‑term debt are:
a. Footnote disclosure of compensating balance arrangements including those not reduced to writing
b. Balance sheet segregation of (1) legally restricted compensating balances and (2) unrestricted compensating balances relating to long‑term borrowing arrangements if the compensating balance can be computed at a fixed amount at the balance sheet date.
c. Disclosure of short‑term bank and commercial paper borrowings:
i. Commercial paper borrowings separately stated in the balance sheet. ii. Average interest rate and terms separately stated for short‑term bank and commercial paper borrowings at the balance sheet date. iii. Average interest rate, average outstanding borrowings, and maximum month-end outstanding borrowings for short‑term bank debt and commercial paper combined for the period.
d. Disclosure of amounts and terms of unused lines of credit for short‑term borrowing arrangements (with amounts supporting commercial paper separately stated) and of unused commitments for long‑term financing arrangements.
Note that the above disclosures are required for filings with the SEC but not necessarily for disclosures in published annual reports. It should also be noted that SFAS 6 states that certain short‑term obligations should not
1) Identify and describe the two major sources of current liabilities.
The two major source of liabilities, for both current and noncurrent liabilities, are operating and financing activities. Current liabilities of an operating nature—such as accounts payable and operating expense accruals—represent claims on resources from operating activities. Current liabilities such as notes payable, bonds, and the current maturities of long-term debt reflect claims on resources from financing activities.
2) Identify the major disclosure requirements for financing-related current liabilities.
The major disclosure requirements (in SEC FRR, Section 203) for financing-related current liabilities such as short‑term debt are:
a. Footnote disclosure of compensating balance arrangements including those not reduced to writing
b. Balance sheet segregation of (1) legally restricted compensating balances and (2) unrestricted compensating balances relating to long‑term borrowing arrangements if the compensating balance can be computed at a fixed amount at the balance sheet date.
c. Disclosure of short‑term bank and commercial paper borrowings:
i. Commercial paper borrowings separately stated in the balance sheet. ii. Average interest rate and terms separately stated for short‑term bank and commercial paper borrowings at the balance sheet date. iii. Average interest rate, average outstanding borrowings, and maximum month-end outstanding borrowings for short‑term bank debt and commercial paper combined for the period.
d. Disclosure of amounts and terms of unused lines of credit for short‑term borrowing arrangements (with amounts supporting commercial paper separately stated) and of unused commitments for long‑term financing arrangements.
Note that the above disclosures are required for filings with the SEC but not necessarily for disclosures in published annual reports. It should also be noted that SFAS 6 states that certain short‑term obligations should not