Effects of Transactions Upon Financial Measurements
Five Events Relating to Liabilities

question 57

Essay

Effects of transactions upon financial measurements
Five events relating to liabilities are described below:
(a) Recorded a bi-weekly payroll, including the issuance of paychecks to employees. Amounts withheld from employees' pay and payroll taxes will be forwarded to appropriate agencies in the near future. (Ignore postretirement costs.)
(b) Made a monthly payment on a 12-month installment note payable, including interest and a partial repayment of the principal amount.
(c) Shortly before the maturity date of a six-month bank loan, made arrangements with the bank to refinance the loan on a long-term basis.
(d) Made an adjusting entry to record accrued interest payable on a 2-year bank loan (interest is paid monthly.)
(e) Made a year-end adjusting entry to amortize a portion of the discount on long-term bonds payable.
Indicate the immediate effects of each transaction or adjusting entry upon the financial measurements in the five column headings listed below. Use the code letters, I for increase, D for decrease, and NE for no effect.
$\begin{array}{|l|c|c|c|c|c|}\hline\text { Transaction } & \begin{array}{c}\text { Current } \\\text { Liabilities }\end{array} & \begin{array}{c}\text { Noncurrent } \\\text { Liabilities }\end{array} & \text { Profit } & \begin{array}{c}\text { Net Cash Flow } \\\text { (All Activities } \\\text { Combined) }\end{array} & \begin{array}{c}\text { (other than } \\\text { operating } \\\text { Activities) }\end{array} \\\hline \text { (a) } &\\\hline \text { (b) } & \\\hline \text { (c) } & \\\hline \text { (d) } & \\\hline \text { (e) } &\\\hline\end{array}$

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Definitions:

Products Liability Action

A legal claim against a manufacturer or seller for producing or selling a defective product causing injury or damage.

MacPherson Case

A landmark legal case that established the principle of duty of care in negligence, making manufacturers liable for harm caused by defective products.

Foreseeable Plaintiff

A person who is reasonably expected to be affected by a defendant's actions, thus entitled to protection under the duty of care in negligence law.

Duty of Care

A legal obligation imposed on individuals or organizations to adhere to a standard of reasonable care while performing any acts that could foreseeably harm others.