(Determining whether certain economic events are liabilities, LO 1) Explain whether each of the following would be considered a liability according to GAAP

(using the three criteria from the chapter) on December 31, 2005. Intuitively, would you consider each of these items an obligation, regardless of how it is accounted for according to GAAP? Explain.

a. The cost of providing warranty services to a customer who purchased a product in 2005. The warranty covers parts and labour for three years from the date of purchase.

b. A company borrows $950,000 on January 8, 2006. The loan is revolving, bears an annual interest rate of 7.5%, and must be renewed each year.

c. A small business signs a two-year, non-cancellable lease on office space in a downtown building in December 2005. The lease requires the business to pay

$10,000 in rent over the two years of the lease.