EX 11-1 Current liabilities

New Wave Co. sold 10,000 annual subscriptions of Game Life for $75 during December 2012. These new subscribers will receive monthly issues, beginning in January 2013. In addition, the business had taxable income of $550,000 during the first calendar quarter of 2013. The federal tax rate is 40%. A quarterly tax payment will be made on April 7, 2013.

Prepare the Current Liabilities section of the balance sheet for New Wave Co. on March 31, 2013.

Answer:

Current liabilities:

Federal income taxes payable.......................... $220,000*
Advances on magazine subscriptions...................  562,500**  
Total current liabilities............................. $782,500  

*$550,000 × 40%
**10,000 × $75 × 9/12 = $562,500


The nine months of unfilled subscriptions are a current liability because New Wave received payment prior to providing the magazines.

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