Choice "B" is correct. All of the items listed will be included in the current liabilities section of Bake's December 31, Year 1 balance sheet. Accounts payable are current liabilities. The bond payable, less the discount, is classified as a current liability because it will be paid in the next operating period. The deferred tax liability is classified as current because it is not related to an asset and will reverse during the next operating period. Total current liabilities are calculated as:
| |
|---|
| Accounts payable | $ 80,000 |
| Bonds payable | 300,000 |
| Bond discount | (15,000) |
| Deferred tax liability | 25,000 |
| Total current liabilities | $ 390,000 |
Choice "c" is incorrect. The deferred tax liability should be included in total current liabilities because it is not related to an asset and is expected to reverse in the next operating period.
Choice "a" is incorrect. The deferred tax liability should be included in total current liabilities because it is not related to an asset and is expected to reverse in the next operating period. Additionally, the discount on the bond payable should be subtracted from, not added to, total current liabilities. Bond discounts always reduce the carrying amount of the associated bonds.
Choice "d" is incorrect. The discount on the bond payable should be subtracted from, not added to, total current liabilities. Bond discounts always reduce the carrying amount of the associated bonds.
