Wednesday, March 6, 2019
Accounting Test Solutions
ch13 Student 1. Some liabilities argon non contractual obligations and may non be account account collectible in silver. lawful bogus 2. Amounts withheld from employees in data link with constituteroll often demo liabilities to third parties. contemporary wrong 3. A node advance produces a obligation that is satisfied when the product or service is nominated. inventory up fictive 4. Long- bourn debt that is callable by the mentionor in the up advent take a crap should be classified as a flow obligation unaccompanied if the debt is anticipate to be called.True saturnine 5. The fancy of substance everyplace form influences the motley of obligations anticipate to be refinanced. True False 6. Under IFRS, a indebtedness that is refinanced after the goal sheet date solely in front the m atomic number 53tary soilments be issued would typically be classified as a sure obligation. True False 7. Warranty put down is drop offed along with the related obligation in the gillyflowering period in which the product on a lower floor warrantee is sell. True False 8. For a evil happening to be fall downd, the claim mustiness wipe out been make before the accountancy period ended.True False 9. A gild should come down a obligation for a t maven ending hazard if it is at to the lowest degree fair affirmable that assets have been impaired and the criterion of electric potential damage support be fairly estimated. True False 10. A disclosure observe is studyd for all material exhalation contingencies for which the fortune of loss is reasonably assertable. True False 11. Under IFRS, the boundary probable indicates a threshold of probability that is substantially higher than a 50/ 50 casualty. True False 12.Under IFRS, if it is probable that a depending on(p) obligation allow result in a futurity defrayal except thither is a range of evenly belike hearts that provide be paid, the midpoint of the range should be accumulated as a loss. True False 13. The address of publicityal sprees should be recorded as outlays in the accounting period when the offers ar ransomed by customers. True False 14. Unlike the Social security evaluate there is no maximum wage base for the Medic atomic number 18 portion of the FICA tax. True False 15. posit and federal official Un body of work Taxes (SUTA and FUTA) must be withheld from employees wages. True False 16. match individually phraseologyology with the align bourne placing the letter designating the ruff term in the outer billet provided by the phrase. __ Liabilities when received. __ __ Confirming termination is likely to pass on. __ A loss adventure accrue in the period of__ related gross sales. __ Most common maverick financing__ arrangement. __ __ Requires substantiating. __ 1. Short-term tone of voice 2. Warranty pecuniary obligation 3. Advances from customers 4. Secured loan 5. Probable 17. Match severally phra se with the correct term placing the letter designating the outflank term in the space provided by the phrase. 1. Accrued liabilities 2. Discount on deferred payment lines account hireable 3.Interest collectable 4. sales tax payable 5. Callable Due on demand. Contra financial obligation. A third party financial obligation. Accrues with passage of age. Expenses incurred that non in so far paid. ____ ____ ____ ____ ____ 18. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Reasonably possible 2. Noncommitted lines of credit 3. node deposits 4. Interest paid on debt 5. deduce contingencies Liabilities until refunded. More than international save less than likely. Face pith x charge per unit x time. Not recorded until realized. Informal takeing accordances. ____ ____ ____ ____ ____ 19.Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. 1. Unasserted claims 2. Factoring 3. Subsequent impressions 4. invoice liabilities 5. Effective use up __ Exceeds the verbalize run on send awayed business lines. __ __ May accept items that atomic number 18 not lawful liabilities. __ __ Sales of callables. __ Evaluated for recognition alone if an bad__ outcome is probable. __ Occur in the original course of instruction before prior course financial__ statements be issued. __ 20. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. . Non concerningnessbearing posters 2. Loss contingencies 3. Committed lines of credit 4. Accounts payable 5. Pledging arrangements __ Use accounts receivable as collateral. __ __ Often require compensating quietus. __ __ tho formal credit peter is the invoice. __ __ Effective please higher than stated elicit. __ Recorded if probable and number is known or__ reasonably estimable. __ 21. Match each p hrase with the correct term placing the letter designating the best term in the space provided by the phrase. return nurse of post plus present value__ of principal. __ __ take for contingencies. __ __ Payable with present-day(prenominal) assets. _ Short-term debt to be refinanced__ with semipermanent bonds payable. __ __ Avoids registration with SEC. __ 1. Current liabilities 2. Usual military rank of long-run liabilities 3. Disclosure shades 4. Long-term liabilities 5. Commercial paper 22. Indicate (by letter) the guidance each of the items listed below should be describe in a symmetricalness sheet at celestial latitude 31, 2011. 1. Not reported 2. Disclosure whole tone only 3. Liability 4. Liability A material illuminate detail on a future event that appears__ exceedingly likely. __ A penalization estimation that probably entrust be asserted by__ the EPA, in which topic a determinable payment is probable. _ Unassessed penalty with a reasonable chance of be__ a sserted, in which case a determinable payment is probable. __ An extremely likely loss imputable to an event that occurred__ previously and whose heart is unknown only estimable. __ 23. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. _ _ How present values partake the measurement_ of contingent liabilities on a lower floor IFRS. _ _ _ _ Definition of probable under IFRS. _ _ how IFRS refers to an accrued liability_ that would virtuallyly be referred to as_ an accrued contingent loss under U.S. generally accepted accounting principles. _ _ _ The follow IFRS would accrue given a range_ of extend toly likely outcomes. _ _ _ _ Treatment of contingent gains under IFRS. _ 1. mid-point of the range 2. provision 3. more likely than not 4. contingent gains are not accrued 5. report at present value whenever time value of money is material 24. Indicate (by letter) the counselling each of the items listed below should be reported in a sense of remainder sheet at declination 31, 2011. 1. Current liability 2. Current liability __ Estimated imprimatur cost. __ A material gain contingent on a future event that appears__ extremely likely to occur in three calendar months. _ Unasserted assessment of penalty that probably depart be 3. Not asserted, in which case there would probably be a loss in six__ reported months. __ 4. Unasserted assessment of penalty with a reasonable possibility Disclosure of being asserted, in which case there would probably be a loss in__ set only 13 months. __ A determinable loss from a agone event that is contingent on 5. Current a future event that appears extremely likely to occur in three__ liability months. __ 25. Indicate (by letter) the way each of the items listed below should be reported in a chemical equilibrium sheet at declination 31, 2011. 26.Indicate (by letter) the way each of the items listed below should be reported in a relief sheet at celest ial latitude 31, 2011. 27. The most common type of liability is A. B. C. D. One that comes into creative activity payable to a loss contingency. One that must be estimated. One that comes into existence due to a gain contingency. One to be paid in interchange and for which the fall and timing are known. 28. Which of the quest(a) is not a characteristic of a liability? A. B. C. D. It represents a probable, future sacrifice of stinting benefits. It must be payable in exchange. It arises from present obligations to other entities.It results from previous(prenominal) proceedings or events. 29. Which of the following is the best definition of a on-going liability? A. An obligation payable at bottom one year. B. An obligation payable within one year of the balance sheet date. C. An obligation payable within one year or within the normal ope valuate cycle, whichever is longer. D. An obligation judge to be satisfied with current assets or by the creation of other current liabil ities. 30. Which of the following is not a liability? A. B. C. D. An unused line of credit. Estimated income taxes. Sales tax collected from customers. Advances from customers. 31.Current liabilities normally are recorded at their A. B. C. D. Present value. Cost. Maturity follow. Expected value. 32. Current liabilities are normally recorded at the metre expected to be paid alternatively than at their present value. This practice sack up be back up by generally accepted accounting principles according to the concept of A. B. C. D. Matching. Consistency. Materiality. Conservatism. 33. The key accounting considerations relating to accounts payable are A. find their existence and ensuring that they are recorded in the conquer accounting period. B. Determining their present value and ensuring that they are recorded in the trance accounting period.C. Determining their existence and determining the correct mensuration. D. Determining the present value of the principal and the com e of the interest. 34. Classifying liabilities as either current or semipermanent helps creditors assess A. B. C. D. Profitability. The sex act risk of a firms liabilities. The full stop of a firms liabilities. The do of a firms liabilities. 35. When cash is received from customers in the form of a refundable deposit, the cash account is adjoind with a corresponding increase in A. B. C. D. A current liability. Revenue. Shareholders equity. Paid-in outstanding. 36.A discount on a noninterest-bearing note payable is classified in the balance sheet as A. B. C. D. An asset. A component of shareholders equity. A contingent liability. A contra liability. 37. The rove of interest printed on the face of a note payable is called the A. B. C. D. Yield roam. Effective rate. grocery store rate. landd rate. 38. The rate of interest that actually is incurred on a note payable is called the A. B. C. D. Face rate. Contract rate. Effective rate. Stated rate. 39. On October 31, 2011, Simeon Builders borrowed $16 one thousand thousand cash and issued a 7-month, noninterestbearing note.The loan was make by spark advance Finance Co. whose stated discount rate is 8%. Skys rough-and-ready interest rate on this loan is A. B. C. D. More than the stated discount rate of 8%. Less than the stated discount rate of 8%. refer to the stated discount rate of 8%. Unrelated to the stated discount rate of 8%. 40. Janes Donut Co. borrowed $200,000 on January 1, 2011, and signed a biennial note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2013. In connection with this note, Janes should report interest disbursement at declination 31, 2011, in the bar of A. B. C. D. $0. $24,000. 48,000. $50,880. 41. What is the effective interest rate (rounded) on a 3-month, noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000? A. B. C. D. 12. 4%. 12. 0 %. 11. 5%. 3. 0%. 42. On September 1, 2011, Hiker place issued a $100,000, 8-mon th, noninterest-bearing note. The loan was made by import Commercial aver whose stated discount rate is 9%. Hikers effective interest rate on this loan (rounded) is A. B. C. D. 9. 0%. 9. 5%. 9. 6%. 9. 7%. 43. familiar Travel Inc. borrowed $500,000 on November 1, 2011, and signed a 12-month note bearing interest at 6%.Interest is payable in full at maturity on October 31, 2012. In connection with this note, Universal Travel Inc. should report interest payable at declination 31, 2011, in the inwardness of A. B. C. D. $8,000. $30,000. $5,000. $25,000. 44. Knique Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by encourage Commercial rely whose stated discount rate is 9%. The effective interest rate on this loan (rounded) is A. B. C. D. 9. 28% 9. 49% 9. 50% 9. 57% 45. Oklahoma anele Corp. paid interest of $785,000 during 2011, and the interest payable account minifyd by $125,000.What was interest outgo for the year? A. B. C. D. $890,000. $660,000 . $555,000. $785,000. 46. On June 1, 2011, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. What is the carrying value of the note as of September 30, 2011? A. B. C. D. $525,000. $ three hundred,000. $495,000. $475,000. 47. At times, businesses require advance payments from customers that will be employ to the leveraging price when goods are delivered or services provided. These customer advances represent A. B. C. D. Liabilities until the product or service is provided.A component of shareholders equity. Long-term assets until the product or service is provided. Revenue upon receipt of the advance payment. 48. M Corp. has an employee benefit excogitate for compensated absences that gives employees 15 paid vacation days. Vacation days shadow be carried everywhere indefinitely. Employees can pick out to receive payment in lieu of vacation days. At declination 31, 2011, Ms unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 vacation days visible(prenominal) at celestial latitude 31, 2011. Ms employees clear an middling of $cl per day.In its celestial latitude 31, 2011, balance sheet, what union of liability for compensated absences is M required to report? A. B. C. D. $0. $30,000. $225,000. $450,000. 49. Which of the following generally is associated with accounts payable? A. B. C. D. survival of the fittest A Option B Option C Option D 50. Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. link learning for 2011 is as follows ($ in gazillions) What follow should Lake report as a current liability for advances from customers in its Dec. 31, 2011, balance sheet? A. B. C. D. $0. $80. $125. $170. 51. altogether of the following that one represent collections for third parties. Which one of the following is not a collection for a third party? A. B. C. D. Sales tax payable. customer deposits. Employee insurance policy deductions. Social security taxes deductions. 52. When a deposit on revertible containers is forego, the firm holding the deposit will beat A. B. C. D. A decrease in cost of goods change. An increase in current liabilities. An increase in accounts receivable. An increase in tax income. 53. B Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days.Both vacation and sick days can be carried everywhere indefinitely. Employees can elect to receive payment in lieu of vacation days however, no payment is given for sick days not interpreted. At celestial latitude 31, 2011, Bs unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 vacation days and 150 sick days available at December 31, 2011. Bs employees earn an average of $200 per day. In its December 31, 2011, balance sheet, what enumerat e of liability for compensated absences is B required to report? A. B. C. D. $60,000. $84,000. $90,000. 144,000. 54. On January 1, 2011, G skunk agreed to grant its employees two weeks vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2011, Gs employees each earned an average of $800 per week. 500 vacation weeks earned in 2011 were not taken during 2011. prosecute rates for employees rose by an average of 5 percent by the time vacations actually were taken in 2012. What is the come up of Gs 2012 wages spending related to 2011 vacation time? A. B. C. D. $0 $20,000 $four hundred,000 $420,000 55.Revenue associated with gratuity card sales should be recognize A. When the gift card is sold. B. No later than the uttermost(a) day of the operating period in which the gift card is delivered to the customer. C. When the probability of gift card redemption is viewed as contradictory. D. Under no cir cumstances, as gift card are not themselves a delivered product, only when rather a selling technique. 56. altogether else equal, a large increase in honorary tax tax income in the current period would be expected to produce what effect on tax income in a future period? A. whopping increase, because unearned revenue becomes revenue when revenue is earned. B.Large decrease, because unearned revenue implies that less revenue has been earned, which reduces future revenue. C. No effect, because unearned revenue is a liability, so payment will use assets rather than providing revenue. D. Large decrease, because unearned revenue indicates collection problems that will reduce net revenues in future periods. 57. Peterson Photoshop sold $1000 of gift cards on a special promotion on October 15, 2011, and sold $1500 of gift cards on another special promotion on November 15, 2011. Of the cards sold in October, $100 were redeemed in October, $250 in November, and $300 in December.Of the cards sold in November, $150 were redeemed in November and $350 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2011, Peterson would show an unearned revenue account for their gift cards with a balance of A. B. C. D. $0. $1000. $1350. $1500. 58. When a product or service is delivered for which a customer advance has been previously received, the allow daybook accounting entranceway includes A. B. C. D. A debit to a revenue and a credit to a liability account. A debit to a evenue and a credit to an asset account. A debit to an asset and a credit to a revenue account. A debit to a liability and a credit to a revenue account. 59. Clarks Chemical society received customer deposits on returnable containers in the keep down of $100,000 during 2011. Twelve percent of the containers were not returned. The deposits are found on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture? A. B. C. D. $0. $2,000. $10,000. $14,400. 60. In May of 2011, Raymond pecuniary Services became involved in a penalty dispute with the EPA.At December 31, 2011, the environmental attorney for Raymond indicated that an un advanceable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2011 financial statements were issued, Raymond judge an EPA dependency offer of $900,000. Raymond should have reported an accrued liability on its December 31, 2011, balance sheet of A. B. C. D. $770,000. $900,000. $970,000. $1,170,000. 61. Slotnick Chemical received customer deposits on returnable containers in the amount of $300,000 during 2011.Fifteen percent of the containers were not returned. The deposits are ground on the container cost marked up 20%. How much gather did Slotnick realize on the forfeited deposits? A. B. C. D. $0. $7,500. $ 9,000. $45,000. 62. Which of the following is not a current liability? A. B. C. D. Accounts payable. A note payable due in 2 years. Accrued interest payable. Sales tax payable. 63. Short-term obligations can be reported as long-term liabilities if A. B. C. D. The firm has a long-term line of credit. The firm has tentative plans to issue long-term bonds. The firm intends to and has the ability to refinance as long-term.The firm has the ability to refinance on a long-term basis. 64. Of the following, which typically would not be classified as a current liability? A. B. C. D. Estimated liability from cash discount program. A long-term note payable maturing within the coming year. Rent revenue received in advance. A six-month cuss loan to be paid with the proceeds from the sale of common stock. 65. Large, highly rated firms several(prenominal)times sell commercial paper A. B. C. D. To borrow funds at a lower rate than through a bank. To earn a profit on the paper. To avoid paper run away. Because the interest rate is locked in by the Federal Reserve Board. 6. Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet? A. B. C. D. The long-term debt is callable by the creditor. The creditor has the reclaim to demand payment due to a contractual violation. The long-term debt matures within the upcoming year. All of the supra require the current classification. 67. A long-term liability should be reported as a current liability in a classified balance sheet if the long-term debt A. B. C. D. is callable by the creditor. is secured by adequate collateral. ill be refinanced with stock. will be refinanced with debt. 68. On December 31, 2011, L, Inc. had a $1,500,000 note payable outstanding, due July 31, 2012. L borrowed the money to finance construction of a newfangled plant. L be after to refinance the note by issuing long-term bonds. Because L temporarily had wasted cash, it p repaid $500,000 of the note on January 23, 2012. In February 2012, L realised a $3,000,000 bond fling. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction cost during 2012. On butt on 13, 2012, L issued its 2011 financial statements.What amount of the note payable should L include in the current liabilities sectionalization of its December 31, 2011, balance sheet? A. B. C. D. $0 $500,000 $1,000,000 $1,500,000 69. Liabilities payable within the coming year are classified as long-term liabilities if refinancing is completed before date of progeny of the financial statements under A. B. C. D. US GAAP. IFRS. Either U. S. GAAP and IFRS. incomplete U. S. GAAP and IFRS. 70. Kline Comp two refinanced current debt as long-term debt on January 5, 2012. Klines pecuniary year ended on December 31, 2011, and its financial statements will be issued sometime in early march, 2012.Under IFRS, how would Kline classify the debt on its Decembe r 31, 2011 balance sheet? A. In the mezzanine amongst current and non-current liabilities. B. Kline would not classify the debt as current or noncurrent, but rather would issue a disclosure note explaining the circumstances. C. As a noncurrent liability. D. As a current liability. 71. emergence Comp each, a building materials supplier, has $18,000,000 of notes payable due April 12, 2012. At December 31, 2011, Branch signed an agreement with First Bank to borrow up to $18,000,000 to refinance the notes on a long-term basis.The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2011, financial statements, the value of Branchs collateral was $20,000,000. On its December 31, 2011, balance sheet, Branch should classify the notes as follows A. B. C. D. $15,000,000 long-term and $3,000,000 current liabilities. $4,500,000 short-term and $13,500,000 current liabilities. $18,000,000 of curre nt liabilities. $18,000,000 of long-term liabilities. 72. Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current.The system of logic behind this preference is that the long-term classification permits the ships society to report A. B. C. D. high working capital and a higher inventory turnover. Lower working capital and a higher current ratio. Higher working capital and a higher current ratio. Higher working capital and a lower debt to equity ratio. 73. Footnote disclosure is required for material potential losses when the loss is at least reasonably possible A. B. C. D. Only if the amount is known. Only if the amount is known or reasonably estimable. Unless the amount is not reasonably estimable. Even if the amount is not reasonably estimable. 4. Gain contingencies usually are recognized in a companys income statement when A. B. C. D. Realized. The amount can be reasonably estimated. The gain is reasonably possible and the a mount can be reasonable estimated. The gain is probable and the amount can be reasonably estimated. 75. A company should accrue a loss contingency only if the likelihood that a liability has been incurred is A. B. C. D. More likely than not and the amount of the loss is known. At least reasonably possible and the amount of the loss is known. At least reasonably possible and the amount of the loss can be reasonably estimated.Probable and the amount of the loss can be reasonably estimated. 76. A contingent loss should be reported in a footer to the financial statements rather than being accrued if A. B. C. D. The likelihood of a loss is remote. The incurrence of a loss is reasonably possible. The incurrence of a loss is more likely than not. The likelihood of a loss is probable. 77. Which of the following is a contingency that should be accrued? A. B. C. D. The company is being sued and a loss is reasonably possible and reasonably estimable. The company deducts life insurance indemni tys from employees paychecks.The company offers a two-year stock- barter for warrant and the outlays can be reasonably estimated. It is probable that the company will receive $100,000 in settlement of a suit of clothes. 78. A loss contingency should be accrued in a companys financial statements only if the likelihood that a liability has been incurred is A. B. C. D. at least remotely possible and the amount of the loss is known. reasonably possible and the amount of the loss is known. reasonably possible and the amount of the loss can be reasonably estimated. probable and the amount of the loss can be reasonably estimated. 79.Paul Company issues a product recall due to an apparently pre-existent and material disgrace dis intersected after the end of its financial year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is A. B. C. D. To hear it in a footnote. To accrue a long-ter m liability. To accrue the liability and explain it in a footnote. To do nothing relative to the contingency. 80. Accounting for be of incentive programs for customer purchases A. B. C. D. Requires probability estimation. Follows the duplicate principle.Is a loss contingency situation. All of the in a higher place are correct. 81. Providing a monetary rebate program for purchasing a product A. B. C. D. Is accounted for similarly to product warranties. Creates an outgo for the vender in the period of sale. Creates a contingent liability for the seller at the time of sale. All of the above are correct. 82. The main going between accounting for rebate and cash discount vouchers is A. B. C. D. The latter is not treated as an expense. Only the former arrive ats a contingent liability when issued. The expense for the latter is usually deferred until redemption of the coupon.There are no operative differences in accounting between the two. 83. Which of the following entail essenti ally the selfsame(prenominal) accounting treatment? A. B. C. D. Coupons for cash rebates and coupons for other premiums Cents-off coupons and coupons for other premiums Cents-off coupons and coupons for cash rebates All of the above are correct. 84. Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the companys assets in that country. If the likelihood of expropriation is remote, a loss contingency should be A. B. C. D. let out but not accrued as a liability. Disclosed and accrued as a liability.Accrued as liability but not released. Neither accrued as a liability nor disclosed. 85. Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the companys asset in that country. If expropriation is reasonably possible, a loss contingency should be A. B. C. D. Disclosed but not accrued as a liability. Disclosed and accrued as a liability. Accrued as liability but not disclosed. Neither ac crued as a liability nor disclosed. 86. passing Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the companys assets in that country.If expropriation is probable, a loss contingency should be A. B. C. D. Disclosed but not accrued as a liability. Disclosed and accrued as a liability. Accrued as liability but not disclosed. Neither accrued as a liability nor disclosed. 87. Z Co. filed suit against W, Inc. in 2011 seeking modify for patent infringement. At December 31, 2011, legal counsel for Z believed that it was probable that Z would be successful against W for an estimated amount in the range of $30 one gazillion billion one meg million to $60 million, with each amount in that range considered equally likely.Z was awarded $40 million in April 2012. Z should report this award in its 2011 financial statements, issued in March, 2012 as A. A receivable and unearned revenue of $40 million. B. A receivable and revenue of $40 million. C. A disclosure of a gain contingency of $40 million. D. A disclosure of a gain contingency of an un as accredited amount in the range of $30 million to $60 million. 88. When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be A. B. C. D. account in the income statement and disclosed.Offset against shareholders equity. Disclosed, but not recognized in the income statement. Neither recognized in the income statement nor disclosed. 89. Which of the following is a contingency that would most likely require accrual? A. B. C. D. Potential claims on elongate warranties. Customer premium offers. Potential liability on a product where none have yet been sold. Sales tax payable. 90. The cost of customer premium offers should be charged to expense A. B. C. D. When the related product is sold. When the premium offer perishs.Over the life cycle of the product to which the premium relates. When the premiums are claimed. 91. The accou nting concept that requires recognition of a liability for customer premium offers is A. B. C. D. Periodicity. Conservatism. Historical cost. The matching principle. 92. Accounting for be of incentive programs for frequent customer purchases involves A. B. C. D. Recording an expense and a liability each period. Recording a liability and a decrease of revenue each period. Recording an expense and an asset reduction each period. Recording an expense and revenue each period. 93.A customer of RoughEdge Sharpeners alleges that RoughEdges new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U. S. GAAP, RoughEdge should accrue a liability in the amount of A. B. C. D. $0. $1,000,000. $2,000,000. $3,000,000. 94. A customer of shave Shar peners alleges that Razors new razor sharpener had a defect that resulted in serious injury to the customer.Razor believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under IFRS, Razor should accrue a liability in the amount of A. B. C. D. $0. $1,000,000. $2,000,000. $3,000,000. 95. Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior pick up, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs A. B. C. D.When the equipment is sold. When the repairs are performed. When payments are made to the service firm. Evenly over the life of the warranty. 96. Funzy Cereal includes one coupon in each piece of ground of Wheatos that it sells and offers a toy car in exchange for $1. 00 and 3 coupons. The cars cost Funzy $1. 50 each. assure indicates that 40% of the coupons eventually will be redeemed. During the pass away month of 2011, the jump month of the offer, Funzy sold 12 million boxes of Wheatos and 2. 4 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2011, income statement?A. B. C. D. $0. $400,000. $800,000. $1,200,000. 97. Captain Cook Cereal includes one coupon in each package of Granola that it sells and offers a puzzle in exchange for $2. 00 and 3 coupons. The puzzles cost Captain Cook $3. 50 each. Experience indicates that 20% of the coupons eventually will be redeemed. During the last month of 2011, the premier month of the offer, Captain Cook sold 6 million boxes of Granola and 900,000 of the coupons were redeemed. What amount should Captain Cook report as a liability for coupons on its December 31, 2011, balance sheet? A. B. C. D. $0. $150,00 0. 300,000. $450,000. 98. At the beginning of 2011, Angel Corporation began offering a 2-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2011 were $180 million. Fifteen percent of the units sold were returned in 2011 and repaired or re primed(p) at a cost of $5. 3 million. The amount of warranty expense on Angels 2011 income statement is A. B. C. D. $5. 3 million. $7. 2 million. $10. 6 million. $27. 0 million. 99. During 2011, Deluxe Leather Goods sold 800,000 two-sided claps under a new sales promotional program.Each belt carried one coupon, which entitles the customer to a $5. 00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2011. At December 31, 2011, Deluxe should report a liability for unredeemed coupons of A. B. C. D. $560,000. $1,050,000. $1,225,000. $1,750,000. In 2011, Holyoak Inc. offers a $20 cash rebate cou pon to customers who purchased one of its new line of products. Holyoak sold 10,000 of these products during the year. By year end of 2011, 7,600 of the rebates had been claimed, and 7,100 had been paid.Holyoaks historical experience with such rebates indicates that 85% of customers claim the rebates. 100. What is the expense that Holyoak should report for its promotional rebates in its 2011 income statement? A. B. C. D. $142,000 $152,000 $170,000 $200,000 101. What is the rebate promotion liability that Holyoak should report in its December 31, 2011 balance sheet? A. B. C. D. $20,000 $28,000 $18,000 None of the above is correct. 102. In the current year, Hanna Company reported warranty expense of $190,000 and the warranty liability account increased by $20,000. What were warranty expenditures during the year?A. B. C. D. $190,000. $170,000. $210,000. $0. 103. puma Co. had a warranty liability of $350,000 at the beginning of 2011, and $310,000 at end of 2011. Warranty expense is bas ed on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2011? A. B. C. D. $0. $1,960,000. $2,000,000. $2,040,000. 104. Carpenter Inc. had a balance of $80,000 in its warranty liability account as of December 31, 2010. In 2011, Carpenters warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2011 were $40 million.What was the balance in the warranty liability account as of December 31, 2011? A. B. C. D. $35,000. $425,000. $125,000. $480,000. superior general Product Inc. shipped 100 million coupons in products it sold in 2011. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2012. There were 45 million coupons redeemed in 2011, and 30 million redeemed in 2012. 105. What was Generals coupon liability as of December 31, 2011? A. B. C. D. $7. 5 million. $13. 5 million. $16. 5 million. $21. 0 million. 106.Wha t was Generals coupon promotion expense in 2011? A. B. C. D. $30. 0 million. $21. 0 million. $13. 5 million. $7. 5 million. 107. What was Generals coupon promotional expense in 2012? A. B. C. D. Zero, since all the expense should be reflected in 2011. $1. 5 million. $7. 5 million. $9. 0 million. 108. During the year, L Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4. 00 cash rebate. L estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year.At December 31, L should report a liability for unredeemed coupons of A. B. C. D. $700,000 $800,000 $1,000,000 $2,800,000 109. Which of the following may create employer liabilities in connection with their payrolls? A. B. C. D. Employee withholding taxes Employee voluntary deductions Employee fringe benefits All of the above are correct. 110. Barbara Muller Services (BMS) pays its e mployees monthly. The payroll information listed below is for January, 2011, the showtime month of BMSs fiscal year. The ledger incoming to record payroll for the January 2011 pay period will include a debit to payroll tax expense of A.B. C. D. $6,120 $4,960 $11,080 $57,880 111. Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1, 2011, to fund a geological survey. The loan was made by Quebec Banque under a short-term credit line. Ontario Resources issued a 9-month, 12% promissory note with interest payable at maturity. Ontario Resources fiscal period is the calendar year. postulate (1. ) go down the diary entry for the issuance of the note by Ontario Resources. (2. ) Prepare the eliminate adjusting entry for the note by Ontario Resources on December 31, 2011. Show calculations. (3. Prepare the daybook entry for the payment of the note at maturity. Show calculations. 112. On September 1, 2011, Triton Entertainment borrowed $24 million cash t o fund a new Fun Park. The loan was made by Nevada Bank under a noncommitted short-term line of credit arrangement. Triton issued a 9month, 12% promissory note. Interest was payable at maturity. Tritons fiscal period is the calendar year. needful 1. Prepare the ledger entry for the issuance of the note by Triton. 2. Prepare the set aside adjusting entry for the note by Triton on December 31, 2011. 3. Prepare the journal entry for the payment of the note at maturity. 113.On May 1, Lectric Industries issued 9-month notes in the amount of $60 million. Interest is payable at maturity. call for lay out the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assurances 114. Grossman Products began operations in 2011. The following selected transactions occurred from September 2011 through March 2012. Grossmans fiscal year ends on December 31. 2011 (a. ) On September 5, Grossman opened a checking account and negotia ted a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees. b. ) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity. (c. ) Grossman received $3,000 of refundable deposits in December for reusable containers. (d. ) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax. (e. ) Grossman recorded accrued interest. 2012 (f. ) Grossman paid the promissory note on the March 1 due date. (g. ) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months. necessary 1.Prepare the suspend journal entries for the 2011 transactions. 2. Prepare the liability section of the balance sheet at December 31, 2011, based on the data supplied. 3. Prepare the appropriate journal entries for the 2012 transactions. 115. Benco rp issues a $90,000, 6-month, noninterest-bearing note which the bank discounted at a 10% discount rate. Required (1. ) Prepare the appropriate journal entry to record the issuance of the note. (2. ) Determine the effective interest rate. 116. On November 1, 2011, a $216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate. Required (1. Prepare the appropriate journal entry to record the issuance of the note. (2. ) Determine the effective interest rate. (3. ) Prepare the appropriate journal entry on December 31, 2011, to record interest on the note for the 2011 financial statements. (4. ) Prepare the appropriate journal entry(s) on July 31, 2012, to record interest and the payment of the note. 117. On November 1, 2011, Ziegler Products issued a $200,000, 9-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate. Required (1. ) Prepare the appropriate journal entry by Ziegler to record the issuance of the note. 2. ) Determine the effective interest rate. (3. ) Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Ziegler. (4. ) Prepare the appropriate journal entry on December 31, 2011, to accrue interest expense on the note depict in 3 for the 2011 financial statements. 118. On October 1, 2011, root Builders Company issued to Carlton Bank a $600,000, 8-month, noninterestbearing note. Interest was discounted by the bank at a 12% discount rate. Required 1.Prepare the appropriate journal entry by Home Builders to record the issuance of the note. 2. Determine the effective interest rate. 3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Home Builders. 4. Prepare the appropriate journal entry on December 31, 2011, to accrue interest expense on the note described in 3 for the 2011 financial statements. 119. The following selected transactions relate to liabilities of Rose Dish Corporation. Roses fiscal year ends on December 31.Required Prepare the appropriate journal entries through the maturity of each liability. 2011 Feb. 3 Negotiated a revolving credit agreement with Second Bank which can be renewed yearbookly upon bank approval. The amount available under the line of credit is $30,000,000 at the banks found rate. April 1 Arranged a 3-month bank loan of $12 million with Second Bank under the line of credit agreement. Interest at the prime rate of 8% was payable at maturity. July 1 Paid the 8% note at maturity. Nov. 1 Supported by the credit line, issued $20 million of commercial paper on a nine-month note.Interest was discounted at issuance at a 6% discount rate. Dec. 31 Recorded any necessary adjusting entry(s). 2012 Aug. 1 Paid the commercial paper at maturity. 120. nonindulgent Corporation borrowed $10 million cash on September 1, 2 011, to provide additional working capital for the years production. nates issued a 6-month, 10% promissory note to Second State Bank. Interest on the note is payable at maturity. Each firm uses the calendar year as the fiscal year. Required 1. Prepare all journal entries from issuance to maturity for Stern Corporation. 2. Prepare all journal entries from issuance to maturity for Second State Bank. 21. Hot Springs Marine borrowed $20 million cash on December 1, 2011, to provide working capital for year-end inventory. Hot Springs Marine issued a 4-month, 9% promissory note to triplet Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firms fiscal period is the calendar year. Required 1. Prepare the journal entries to record (a) the issuance of the note by Hot Springs Marine and (b) Third Banks receivable on December 1, 2011. 2. Prepare the journal entries by both(prenominal) firms to record all subsequent events related to the no te through March 31, 2012. 3.Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 9% is the banks stated discount rate. Prepare the journal entries to record the issuance of the noninterestbearing note by Hot Springs Marine on December 1, 2011. What would be the effective interest rate? 122. On June 30, 2011, Chu Industries issued 9-month notes in the amount of $700,000. Assume that interest is payable at maturity in the following three independent cases Required Determine the amount of interest expense that should be accrued in a year-end adjusting entry under each assumption 23. The following selected transactions relate to liabilities of stops Glass Corporation (Chicago) for 2011. Chicagos fiscal year ends on December 31. (1. ) On January 15, Chicago received $7,000 from heat content Construction toward the purchase of $66,000 of plate glass to be delivered on February 6. (2. ) On February 3, Chicago received $6,700 of refundable deposits relating to containers used to transport glass components. (3. ) On February 6, Chicago delivered the plate glass to Henry Construction and received the balance of the purchase price. (4. ) First quarter credit sales totaled $700,000.The state sales tax rate is 4% and the local sales tax rate is 2%. Required Prepare journal entries for the above transactions. 124. In its 2011 yearly report to shareholders, Ank-Morpork Times Inc. included the following disclosure REVENUE intuition Advertising revenue is recognized when advertisements are published, broadcast or when placed on the Companys Web sites, net of provisions for estimated rebates, credit and rate adjustments and discounts. Circulation revenue includes single copy and home-delivery subscription revenue. Single copy revenue is recognized based on date of publication, net of provisions for related returns.Proceeds from home-delivery subscriptions and related costs, in general agency commissions, are deferred at th e time of sale and are recognized in earnings on a pro rata basis over the terms of the subscriptions. Other revenue is recognized when the related service or product has been delivered. Also, the following information on its current liabilities was included in its comparative balance sheets Required Assuming that Ank-Morpork Times Inc. collected $440,000,000 in cash for home delivery subscriptions during fiscal year 2011, what amount of revenue did it recognize during 2011 from this source?Show the relevant T-account information to support your answer. 125. MullerB Companys employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately, meaning an employee is entitled to the pay even if employment terminates. During 2011, total wages paid to employees equaled $808,000, including $8,000 for vacations actually taken in 2011, but not including vacations related to 2011 that will be taken in 2012. All vacations earned before 2011 were ta ken before January 1, 2011. No accrual entries have been made for the vacations.Required Prepare the appropriate adjusting entry for vacations earned but not taken in 2011. 126. The following facts relate to gift cards sold by Sunbru Coffee Company during 2011. Sunbrus fiscal year ends on December 31. (a. ) In October, 2011 sold $3,000 of gift cards, and redeemed $500 of those gift cards. (b. ) In November, 2011, sold $4,000 of gift cards, and redeemed $1,400 of October gift cards and $700 of November gift cards. (c. ) In December, 2011, sold $3,000 of gift cards, and redeemed $200 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards. (d. Sunbru views a gift card to be befuddled (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30. Required 1. Prepare all journal entries appropriate to be recorded on ly during the month of December, 2011 relevant to gift card sales, gift card redemptions, and gift card breakage. 2. Determine the balance of the unearned revenue liability to be reported in the December 31, 2011, balance sheet. Show the relevant T-account information to support your answer. 127.Diversified Industries sells perishable electronic products. Some must be shipped in reusable containers. Customers pay a deposit for each container. The deposit is equal to the containers cost. Customers receive a refund when the container is returned. During 2011, deposits collected on containers shipped were $700,000. Deposits are forfeited if containers are not returned in 18 months. Containers held by customers on January 1, 2011, were $330,000. During 2011, $410,000 was refunded and deposits of $25,000 were forfeited. Required 1. Prepare the appropriate journal entries for the deposits received and returned during 2011. . Determine the liability for refundable deposits to be reported i n the December 31, 2011, balance sheet. 128. At December 31, 2011, Cordova Leathers liabilities include the following 1. $15 million of noncallable 9% notes were issued for $15 million on August 31, 1992. The notes mature on July 31, 2012. Sufficient cash is expected to be available to retire the notes at maturity. 2. $30 million of 8% notes were issued for $30 million on May 31, 2007. The notes mature on May 31, 2017, but investors have the extract of calling (demanding payment on) the notes on June 30, 2012.However, the call option is not expected to be exercised, given prevailing market conditions. 3. $18 million of 10% notes are due on March 31, 2013. A debt covenant requires Cordova to maintain current assets at least equal to 150% of its current liabilities. On December 31, 2011, Cordova is in violation of this covenant. Cordova obtained a firing from Village Bank until June 2012, having convinced the bank that the companys normal 2 to 1 ratio of current assets to current li abilities will be reestablished during the first half of 2012.Required For each of the three liabilities, indicate the portion of the debt that can be excluded from classification as a current liability (that is, reported as a noncurrent liability). Explain. 129. In its 2011 annual report to shareholders, Border Airlines Inc. presented the following balance sheet information about its liabilities In addition, Border presented the following among its footnote disclosures Maturities of long-term debt (including sinking fund requirements) for the next five years are 2012 $421 million 2013 $212 million 2014 $273 million 2015 $1. 0 billion 2016 $777 million.Required Consider the appropriate classification of these long-term debt obligations. Assuming no more long-term debt will be issued, what are the implications of the information above for Borders liquidity and solvency risk in 2011 and the following years? 130. Mozart Music Co. began operations in December of 2011. The company s old gift certificates during December in various amounts totaling $1,600. The gift certificates are redeemable for product within 3 years of the purchase date. However, experience within the industry predicts that 90% of gift certificates will be redeemed within one year.Certificates totaling $500 were presented for redemption during 2011 as part of merchandise purchases having a total retail price of $750. Required (1. ) Determine the liability for gift certificates to be reported in the December 31, 2011, balance sheet. (2. ) What is the appropriate classification (current or noncurrent) of the liabilities at December 31, 2011? Show calculations. In its 2011 annual report to shareholders, the Goodday Chemical Company included the following footnote excerpts on CONTINGENCIES in its annual report to shareholders At December 31, 2011, Goodday had recorded liabilities aggregating $66. million for anticipated costs related to various environmental matters, primarily the therapeutic o f numerous waste disposal sites and certain properties sold by Goodday. These costs include legal and consulting fees, site studies, the design and implementation of therapeutic plans, post-remediation observe and related activities and will be paid over several years. The amount of Gooddays ultimate liability in gaze of these matters may be unnatural by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute.At December 31, 2011, Goodday had recorded liabilities aggregating $218. 7 million for potential product liability and other tort claims, including related legal fees expected to be incurred, presently asserted against Goodday. The amount recorded was determined on the basis of an assessment of potential liability using an compend of available information with respect to pending claims, historical experience and, where available, current trends.Goodday is a defendant in numerous lawsuits involv ing at December 31, 2011, roughly 63,000 claimants alleging various asbestos related personal injuries purported to result from exposure to asbestos in certain rubber coated products manufactured by Goodday in the recent or in certain Goodday facilities. Typically, these lawsuits have been brought against multiple defendants in state and Federal courts. In the past, Goodday has disposed of well-nigh 22,000 cases by defending and obtaining the dismissal thereof or by entering into a settlement.Goodday has policies and coverage-in-place agreements with certain of its insurance carriers that cover a substantial portion of estimated indemnity payments and legal fees in respect of the pending claims. At December 31, 2011, Goodday has recorded an asset in the amount it expects to collect under the policies and coverage-in-place agreements with certain carriers related to its estimated asbestos liability. Goodday has to a fault commenced discussions with certain of its excess coverage i nsurance carriers to establish arrangements in respect of their policies.Subject to the uncertainties referred to above, Goodday has concluded that in respect of any of the above described liabilities, it is not reasonably possible that it would incur a loss exceeding the amount recognized at December 31, 2011, with respect thereto which would be material relative to the unite financial position, results of operations, or liquidity of Goodday. 131. Required Briefly explain the determinate basis on which the costs/obligations for environmental cleanup and product liability/tort claim matters were accrued in the financial statements.Answer GAAP imageing accounting for contingencies requires that contingent losses (and the corresponding obligations) be recorded (accrued) when the loss is both probable and the amount is known or reasonably estimable. Goodday based its abridgment on pending claims, historical experience and current trends, such as recent case verdicts with similar ma nufacturers. 132. Required What is the point of the last carve up of the Goodday disclosure? Explain in terms of authoritative GAAP. 133.Required Show the heavyset journal entry that Goodday recorded for the environmental cleanup and product liability/tort claim matters, described in the footnote disclosure. 134. The following selected transactions relate to contingencies of Eastern Products Inc. which began operations in July, 2011. Easterns fiscal year ends on December 31. Financial statements are published in April, 2012. 1. No customer accounts have been shown to be uncollectible as yet, but Eastern estimates that 3% of credit sales will eventually prove uncollectible.Sales were $300 million (all credit) for 2011. 2. Eastern offers a one-year warranty against manufacturers defects for all its products. Industry experience indicates that warranty costs will approximate 2% of sales. Actual warranty expenditures were $3. 5 million in 2011 and were recorded as warranty expense whe n incurred. 3. In December, 2011, Eastern became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the company $1. 5 million. 4.In November, 2011, the State of Vermont filed suit against Eastern, asking civil penalties and injunctive relief for violations of clean water system laws. Eastern reached a settlement with state authorities to pay $4. 2 million in penalties on February 3, 2012. 5. Eastern is the plaintiff in a $40 million lawsuit filed against a customer for costs and addled profits from contracts rejected in 2011. The lawsuit is in final greet and attorneys advise that it is virtually certain that Eastern will be awarded $30 million. Required Prepare the appropriate journal entries that should be recorded as a result of each of these contingencies.If no journal entry is indicated, state why. 135. The following selected transactions relate to contingencies of Bowe -Whitney Inc. Bowe-Whitneys fiscal year ends on December 31, 2011, and financial statements are published in March 2012. 1. Bowe-Whitney is involved in a lawsuit resulting from a dispute with a customer over a 2011 transaction. At December 31, attorneys advised that it was probable that Bowe-Whitney would lose $3 million in an unfavorable outcome. On February 12, 2012, judgment was rendered against Bowe-Whitney in the amount of $14 million plus interest, a total of $15. 2 million.Bowe-Whitney does not plan to challenge the judgment. 2. Since August of 2011, Bowe-Whitney has been involved in labor disputes at two of its facilities. Negotiations between the company and the unions have not produced a settlement and, since January 2011, strikes have been ongoing at these facilities. It is virtually certain that material costs will be incurred but the amount of resultant costs cannot be adequately predicted. 3. Bowe-Whitney is the defendant in a lawsuit filed in January 2012 in which Ac cess Company seeks $10 million as an adjustment to the purchase price related to the sale of Bowe-Whitneys hardwood division in 2011.The lawsuit alleges that Bowe-Whitney kinky the divisions assets and liabilities. Legal counsel advises that it is reasonably possible that Bowe-Whitney could lose $5 million, but that its extremely unlikely it could lose the $10 million asked for. 4. At March 1, 2012, the EPA is in the process of investigating the possibility of environmental violations at one of Bowe-Whitneys sites, but has not proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made, a settlement of up to $33 million is probable.Required Prepare journal entries that should be recorded as a result of each of the above contingencies. 136. Concept 1 Office Products sells office electronics that carry a 60-day manufacturers warranty. At the time of purchase, customers are offered the opportunity to also buy a 1-year or 2-year ex tended warranty for an additional charge. Required 1. Does the sale of the extended warranty represent a loss contingency? 2. Provide journal entries for the extended warranty sales and revenue recognition. 137. In its 2011 annual report to shareholders, Hyer Aviation Group Inc. ncluded the following disclosure On October 6, 2010, the companys subsidiary, Pyro Aeroplex, filed suit against Syntex, an unorganized division of Bright American Corporation, for breach of contract and fraud with regard to the supply of deficient wire rope that is installed as aircraft flight checker cables on WD-50 aircraft. The case, filed in the circuit court of Bell County, Arkansas, was brought to trial and on September 20, 2011, a jury returned with a verdict in favor of the company in the amount of $17. 5 million. The Court, upon a postjudgment motion filed by Pyro, reduced the judgment to $4. million. Pyro has appealed that Order to the Supreme Court of Arkansas. The company believes the appeal is without merit and will continue to pursue final judgment on the Order. The company, pending appeal, has not recorded the $4. 5 million favorable judgment. Required What journal entries, if any, has Hyer recorded regarding this contingency? Explain its rationale. The following facts apply to TinyPart encounter Companys pending litigation as of December 31, 2011 a. TinyPart is defending against a lawsuit and believes there is a 51% chance it will lose in court.If they lose, TinyPart estimates that damages will be $100,000. b. TinyPart is defending against another lawsuit for which charge believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates damages will fall somewhere in the range of $30,000 $50,000, with each amount in that range equally likely to occur. c. TinyPart is defending against another lawsuit that is very(a) to item (b), but the relevant losses will only occur far into the future. The present values of the endpoints of the rang e are $15,000 and $25,000.TinyParts management believes the personal effects of time value of money on these amounts are material, but also believes the timing of these amounts is uncertain. d. TinyPart is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court. If TinyPart loses, it believes damages will fall somewhere in the range of $35,000 $40,000, with each amount in that range equally likely to occur. 138. Required Indicate how TinyPart would disclose or account for the lawsuit described in part (a) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 39. Required Indicate how TinyPart would disclose or account for the lawsuit described in part (b) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 140. Required Indicate how TinyPart would disclose or account for the lawsuit described in part (c) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 141. Required Indicate how TinyPart would disclose or account for the lawsuit described in part (d) under U. S. GAAP and under IFRS in the financial statements for the year ended December 31, 2011. 142.In 2011, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturers defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. Sales were $6,000,000 for the first year of the products life and actual warranty expenditures were $29,000. Assume that all sales are on credit. Required 1. Prep
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