A finished ACC-371 Topic 1 liability definition test memo example, testing four year-end items for a present, unavoidable obligation created by an event already past, and recognizing the two that pass. Searches like "acc 371 topic 1 assignment example", "acc371 topic 1 sample" and "acc-371 topic 1 example" land here.
What a finished ACC-371 Topic 1 liability definition test memo looks like
Written for the company's controller, the memo puts one question to every item: at the balance sheet date, does the company have a present obligation, created by an event already past, that leaves it little or no discretion to avoid a future transfer? The materials order fails. Neither side has performed, so the contract is executory, and the memo treats it as a disclosed commitment rather than a debt. The restructuring fails too, since an unannounced board plan gives nobody outside the room a claim and could be reversed next month. The profit bonus passes: the plan existed all year, the employees rendered the service and the $140,000 amount follows from reported profit. The deferred tax balance passes as well, $84,000 measured at the enacted 21 percent rate on $400,000 of taxable temporary differences. All figures are illustrative.
How an ACC-371 Topic 1 example is structured
Each item goes through the same three tests in a fixed order, so no conclusion arrives ahead of its reasoning. The memo begins with the definition, broken into its parts: an obligation that exists now, arising from an event already past, that the company has little or no discretion to avoid. The four items come next, each with only the facts bearing on those parts. The third part runs the tests in a small grid, marking where each item passes or fails. A fourth part turns to measurement for the two items that pass, with the bonus computed from the plan formula and the deferred tax balance from the enacted rate under ASC 740. The fifth part drafts the year-end entries. The memo stops on the fact that would move the restructuring onto the balance sheet: its termination terms communicated to the affected employees before year end.
The definition broken into testable parts
Present obligation, past event and little discretion to avoid are separated at the outset, so each item can pass or fail on a named part of the definition.
An executory order kept off the ledger
Neither the supplier nor the company has performed under the materials order, so the memo treats it as a commitment for the notes instead of a recorded liability.
Board intent tested against outside parties
An approved but unannounced restructuring leaves no employee or landlord holding a claim, which is why the plan creates no obligation at the balance sheet date.
The bonus accrued from the plan formula
Service was rendered during the year under a plan already in force, so the $140,000 belongs in this year's liabilities even though payment waits until February.
Deferred tax measured at the enacted rate
The $84,000 balance applies the rate already written into law to the taxable temporary differences, not a rate management expects some future legislature to set.
Where marks go in ACC-371 Topic 1
Graders reading this memo look for the step where a definition meets a fact, and most lost credit sits at that step. Recording the materials order as a liability because the contract is signed and noncancelable treats a promise both sides still owe as a debt one side already owes. The restructuring is the item most often accrued in error, since a board vote feels final; the memo is expected to ask who outside the company could enforce it. Leaving the bonus unrecorded because it is paid after year end confuses the settlement date with the obligating event. Deferred tax measured at a rate management predicts, rather than one enacted, applies ASC 740 loosely enough to be marked wrong. A memo listing its conclusions, with no test walked for any item, gives the reader nothing to check.
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Send the ACC-371 Topic 1 instructions, the rubric from your classroom and the items or company facts your section assigned. We write a custom example to them, with the liability definition broken into its parts, every item tested against each part, the passing items measured and the entries drafted, back in 24 to 48 hours. The first one is free.
ACC-371 Topic 1 questions, answered
Is a signed purchase commitment a liability?
Usually not at signing. A noncancelable order is executory: the supplier has not delivered and the company has not paid, so neither side has yet received what it bargained for. Significant commitments are disclosed in the notes. A recorded loss arises only if the contract price has come to exceed the current market price of the goods, and in that case the loss is measured and accrued at year end.
Why does an approved restructuring plan not create a liability?
Because approval alone gives nobody outside the company a claim. The board could reverse its vote next month and owe nothing to anyone. US GAAP generally recognizes exit costs when they are incurred, and one-time termination benefits when the plan's terms are communicated to the employees affected. Until that communication happens the plan is an intention, and the memo treats it as one.
Is a pension obligation tested the same way?
The same definition applies, and at an introductory level the answer is yes. Employees earn pension benefits as they work, so service already rendered creates a present obligation long before anyone retires. The balance sheet reports the plan's funded status, the obligation less the plan assets set aside to pay it. Measuring that obligation rests on actuarial assumptions, which later coursework usually treats in more depth than this memo does.