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Exam 13: Current Liabilities and Contingencies

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Question 31

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Define a loss contingency and give two examples that almost always are accrued.

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A loss contingency is an existing situat...

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Question 32

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All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

A) Sales tax payable.
B) Customer deposits.
C) Employee insurance deductions.
D) Social security taxes deductions.

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Question 33

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All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period?

a) What non-accounting factors are important before evaluating whether a pending lawsuit should be accrued as a liability and reflected in the financial statements? b) What accounting factors should be considered in determining whether a pending lawsuit should be accrued as a liability and reflected in the financial statements?

Revenue associated with gift card sales should be recognized:

Z Co. filed suit against W Inc. in 2013 seeking damages for patent infringement. At December 31, 2013, 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 million to $60 million, with each amount in that range considered equally likely. Z was awarded $40 million in April 2014. Z should report this award in its 2013 financial statements, issued in March 2014 as:

Providing a monetary rebate program for purchasing a product:

Short-term obligations can be reported as long-term liabilities if:

Financial statement note disclosure is required for material potential losses when the loss is at least reasonably possible:

MullerB Company's 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 2013, total wages paid to employees equaled $808,000, including $8,000 for vacations actually taken in 2013, but not including vacations related to 2013 that will be taken in 2014. All vacations earned before 2013 were taken before January 1, 2013. No accrual entries have been made for the vacations. Required: Prepare the appropriate adjusting entry for vacations earned but not taken in 2013.

In its 2013 annual report to shareholders, Border Airlines Inc. presented the following balance sheet information about its liabilities: In addition, Border presented the following among its note disclosures: Maturities of long-term debt (including sinking fund requirements) for the next five years are: 2014 - $421 million; 2015 - $212 million; 2016 - $273 million; 2017 - $1.0 billion; 2018 - $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 Border's liquidity and solvency risk in 2013 and the following years?

Some liabilities are not contractual obligations and may not be payable in cash.

Albertson Corporation began a special promotion in July 2013 in an attempt to increase sales. A coupon was placed in each box of product. Customers could send in five coupons for a free prize. Each prize cost Albertson Corporation $3.00. Albertson's management estimated that 80% of the coupons would be redeemed. For the six months ended December 31, 2013, the following information is available: Required: What is the estimated liability for the premium offer at December 31, 2013?

Cracker Corporation began a special promotion in July 2013 in an attempt to increase sales. A coupon was placed in each box of product. Customers could send in five coupons for a free prize. Each prize cost Cracker Corporation $2.00. Cracker's management estimated that 70% of the coupons would be redeemed. For the six months ended December 31, 2013, the following information is available: Required: Record all necessary journal entries for the premium offer for 2013.

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:

The following selected transactions relate to liabilities of Rose Dish Corporation. Rose's fiscal year ends on December 31. Required: Prepare the appropriate journal entries through the maturity of each liability.

On December 31, 2013, L Inc. had a $1,500,000 note payable outstanding, due July 31, 2014. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2014. In February 2014, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2014. On March 13, 2014, L issued its 2013 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2013, balance sheet?

On May 1, Lectric Industries issued 9-month notes in the amount of $60 million. Interest is payable at maturity. Required: Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions:

On October 1, 2013, Home Builders Company issued to Carlton Bank a $600,000, 8-month, noninterest-bearing 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, 2013, to accrue interest expense on the note described in number 3 for the 2013 financial statements.

On November 1, 2013, a $216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate. Required: Prepare the appropriate journal entry to record the issuance of the note. 1. Determine the effective interest rate. 2. Prepare the appropriate journal entry on December 31, 2013, to record interest on the note for the 2013 financial statements. 3. Prepare the appropriate journal entry(s) on July 31, 2014, to record interest and the payment of the note.