| Course | AC301 Intermediate Accounting II |
|---|---|
| Unit | Unit 2 |
| Paper type | Current liability problem |
| Length | About 730 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC301 Unit 2
Team Fees, Gift Cards and a Note Due in March: A Unit 2 Current Liability Problem for a Chain of Cheer Gyms
[Student Name]
Purdue University Global
AC301: Intermediate Accounting II
Unit 2 Current Liability Problem
[Instructor Name]
[Date]
Flipside Cheer & Tumble, its coaches and every amount are composite; the standards and textbook cited are real.
Approach
An obligation counts as current if Flipside will pay or perform it within the operating cycle or a year, using current assets or taking on another short-term obligation to do so (Kieso et al., 2019). Flipside's operating cycle is shorter than a year, so the one-year test applies. Each block below states the facts, measures the obligation and ends on the year-end balance and its entry.
Block 1: Competitive Team Fees
On September 1, Flipside collected season fees from 320 competitive-team athletes at $1,500 each, $480,000 in all, for a season running September through August. The gym earns the fee as it coaches the athlete, so revenue follows the months of the season, not the date of payment (Financial Accounting Standards Board, 2014).
Earned by December 31: four months of twelve, $160,000. Unearned at December 31: $320,000. Entry, September 1: Cash, debit $480,000; Unearned Team Fees, credit $480,000. Entry, December 31: Unearned Team Fees, debit $160,000; Team Fee Revenue, credit $160,000.
Because the whole season ends within a year, the full $320,000 is current.
Block 2: Gift Cards and Breakage
Holiday gift cards sold in November and December totaled $24,000, and $12,000 had been redeemed for classes and camps by year end. Flipside's history shows that about 15 percent of card value is never used. When a seller expects to be entitled to breakage, the expected unused value becomes revenue step by step as customers redeem the rest, rather than only when cards expire (Financial Accounting Standards Board, 2014).
Expected redemptions: $24,000 times 85 percent, $20,400. Share redeemed so far: $12,000 divided by $20,400, 58.8 percent. Breakage recognized: $3,600 times 58.8 percent, $2,118. Revenue recognized: $12,000 plus $2,118, $14,118. Gift card liability at December 31: $24,000 minus $14,118, $9,882.
Flipside recognizes part of the breakage now because redemptions show the cards are being used as history predicted; booking all $3,600 at the sale would count revenue for classes nobody has yet taken.
Block 3: Sales Tax on Pro Shop Sales
The pro shop's register totals of $64,200 for December include sales tax at 7 percent, because the registers ring the tax into each sale. Sales: $64,200 divided by 1.07, $60,000. Tax payable: $4,200. Entry: Cash, debit $64,200; Sales, credit $60,000; Sales Tax Payable, credit $4,200. Team fees and classes are not taxed in Flipside's state, so only merchandise is involved.
Block 4: Accrued Vacation
Eighteen part-time coaches have earned vacation they have not taken: 32 hours each at an average of $22 an hour. The pay has been earned through past coaching, the right carries forward to next year, payment is probable and the amount can be estimated, so all four conditions for accruing compensated absences are met (Financial Accounting Standards Board, 1980).
Accrual: 18 times 32 hours times $22, $12,672. Entry: Wages Expense, debit $12,672; Vacation Wages Payable, credit $12,672.
Block 5: Bank Note Due March 31
A $250,000 note to a community bank falls due on March 31. Flipside's statements were issued on February 25. Two weeks earlier, on February 10, Flipside signed a noncancelable agreement with a second lender to refinance the full balance for five years. The lender is financially able to honor it, and Flipside is in compliance with its terms. Because the company has both the intent and a demonstrated ability to refinance on a long-term basis, the note is excluded from current liabilities and reported with the long-term debt; the notes explain the February agreement (Financial Accounting Standards Board, 1975).
Current Liabilities at December 31
1. Unearned team fees: $320,000.
2. Gift card liability: $9,882.
3. Sales tax payable: $4,200.
4. Vacation wages payable: $12,672.
Total of these items: $346,754. The $250,000 note appears below, under long-term debt.
What the Classification Changes
Without the February agreement, current liabilities would rise to $596,754, and Flipside's current ratio would fall sharply. Most of the current total is unearned team fees, which Flipside will settle by coaching rather than by paying cash, a point a lender reading the ratio should keep in mind.
References
Financial Accounting Standards Board. (1975). Classification of short-term obligations expected to be refinanced (Statement of Financial Accounting Standards No. 6). https://www.fasb.org
Financial Accounting Standards Board. (1980). Accounting for compensated absences (Statement of Financial Accounting Standards No. 43). https://www.fasb.org
Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
AC301 Unit 2 instructions, in plain terms
The second AC301 unit gathers several kinds of current liabilities into one problem, and each block of facts asks for a measurement and an entry. Start by stating the test for current classification so every later decision has a reference point. Unearned revenue is measured by the service still owed, not the cash received. Gift cards need a breakage estimate and a recognition pattern that follows redemptions. Sales tax hidden in register totals is extracted by dividing by one plus the rate. Compensated absences are accrued when the four conditions are met, so name them. A short-term note can be excluded from current liabilities only if a qualifying refinancing exists before issuance, so check the dates. List the year-end balances together at the end. A closing comment on what the total tells a lender shows judgment. Cite the revenue, compensated absences and refinancing standards in APA 7.
How this AC301 Unit 2 example is built
The sample opens with the classification test and Flipside's operating cycle. Block 1 records 320 season fees of $1,500 and earns four months by December 31. Block 2 works the gift card breakage in steps: expected redemptions of $20,400, a 58.8 percent redemption share, $2,118 of breakage and a $9,882 liability; the highlighted sentence explains why breakage follows redemptions. Block 3 divides $64,200 by 1.07 to separate $4,200 of tax. Block 4 tests the four conditions for vacation pay and accrues $12,672. Block 5 dates the refinancing agreement on February 10, before issuance on February 25, and moves the $250,000 note to long-term debt under the 1975 statement on refinancing. A summary lists $346,754 of current items, and the last section notes that most of that total will be settled by coaching, not cash.
Reading the AC301 Unit 2 grading rubric
The AC301 rubric for this problem gives each block its own points, so a mistake in one does not sink the rest. Accuracy matters most: the unearned balance, the breakage figure, the tax extracted and the vacation accrual must each be right. Entries are checked for correct accounts and amounts. The refinancing block is a frequent decider, because the grade depends on dating the agreement against the issuance date. Explanations that cite the governing standard for each item show understanding beyond arithmetic. A consolidated list of current liabilities demonstrates that the student can present the results. A brief comment on how the total affects a ratio or a lender's view adds analysis that instructors often credit. Purdue Global expects clear labels on each block. References in APA 7 to the revenue, compensated absences and refinancing guidance finish the problem.
AC301 Unit 2 help from the desk
Students often record all gift card breakage at the sale or ignore it until cards expire. Season fees are sometimes recognized when cash arrives. Sales tax is computed as 7 percent of the register total rather than extracted from it, which overstates the tax by a small but visible amount. Vacation accruals use next year's pay rate or skip the conditions entirely. The refinancing block is the costliest error: a note is moved to long-term debt because management intends to refinance, without any signed agreement before issuance. Some papers present the liabilities but never total them. Others leave out the entry behind each balance. If your problem adds warranties, payroll taxes or bonuses to the mix, a writer can measure each one and show the year-end list for your Purdue Global section.
Get an AC301 Unit 2 example written to your instructions
Which obligations appear in your Unit 2 problem decides the blocks, so send its sale dates, redemption data, tax rates, payroll details and any refinancing terms, plus the rubric. Each liability comes back measured, classified and journalized within 24-48h. The first custom sample is free, and blocks the problem lacks are simply left out. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC301 Unit 2 questions, answered
Why is gift card breakage recognized before the cards expire?
Because under ASC 606 a company that expects to keep some unredeemed balances recognizes that expected breakage in proportion to the pattern of rights its customers do exercise. Waiting until expiry would delay revenue the company already expects to keep, and recognizing it all at sale would anticipate redemptions still to come. When breakage cannot be estimated, it waits until redemption becomes remote.
What if the refinancing agreement is signed after the statements are issued?
Then the note is current. The standard asks whether the ability to refinance existed before the statements were issued or available to be issued, and an agreement signed later does not qualify, however certain the renewal seemed. Some AC301 problems move the signing date to test exactly this. The sample reads the dates in the facts and states which side of issuance the agreement falls on.
Do sick days need an accrual like vacation days?
Usually not. The accrual for compensated absences applies when the rights have been earned, vest or accumulate, payment is probable and the amount can be estimated. US GAAP relaxes the rule for sick pay that accumulates but does not vest, allowing it to be expensed when taken. The sample accrues sick pay only when the problem states that unused days are paid out.
Where can I find a free AC301 Unit 2 sample paper?
This page offers a complete AC301 Unit 2 current liability problem for a composite cheer gym chain, measuring season fees, gift cards, sales tax, vacation pay and a refinanced note, with entries and APA 7 references.
How much breakage does the AC301 Unit 2 sample recognize?
Flipside expects 15 percent of its $24,000 of cards to go unused. With 58.8 percent of expected redemptions already made, it recognizes $2,118 of breakage now and the rest as more cards are used.