Exam 13: Current Liabilities and Contingencies

Existing claims related to product warranties and litigation as of December 31, 2010, indicate that it is probable that a liability has been incurred.However, as of December 31, 2010, the amount of the obligation cannot be reasonably estimated.Based on these facts, an estimated loss contingency should be

Discuss how current GAAP requirements concerning accounting for compensated absences vary for vacation pay and sick pay.

The following information is given for Pacific Airlines: Required:

Mr.Mario, the plant supervisor of Super Brothers Corp., is allowed a bonus of 4% of income after bonus and tax.For 2010, the tax rate is 30% and income before bonus and tax amounts to $1, 200, 000. Required: Compute the amount of Mr.Mario's 2010 bonus.

In considering contingencies, IFRS and GAAP define the term "probable" as

Which of the following statements is not true?

Prince sells a certain product for $20, 000.Included in this price is an implied service contract of $800.Fifty machines were sold in 2010.Warranty expense incurred during 2010 amounted to $25, 000.The company uses the sales warranty accrual method.Which entry would probably not be made in 2010?

All of the following are examples of legal liabilities except

Which of the following is the most appropriate way to display liabilities on the balance sheet?

The Chipo Company includes one coupon having no expiration date with its deluxe snack pack.Upon return of 10 coupons, Chipo will send a silver chip clip, which costs Chipo $1.50 each.Past experience indicates that 30% of coupons issued will be redeemed.Chipo began this promotion in 2010 and sold 1, 000, 000 deluxe snack packs.During 2010, 90, 000 coupons were received and 9, 000 chip clips were distributed to customers.The December 31, 2010 balance sheet should include a liability for coupons outstanding of

Which of the following statements is true?

Battlecreek Breakfast places a coupon in each box of its cereal product.Customers may send in five coupons and $3, and the company will send them a recipe book.Sufficient books were purchased at a cost of $5 each.A total of 500, 000 boxes of product were sold in 2010.It was estimated that 4% of the coupons would be redeemed.During 2010, 9, 000 coupons were redeemed.What is Battlecreek's premium expense for 2010?

The modified cash basis to determine warranty expense

Marshall Co.employs a staff of 30 at a total monthly gross pay of $60, 000.The company withholds federal income tax at 20% and state income tax at 3% for all employees.In addition, the following tax rates apply: FICA tax, 7.65%; federal unemployment tax, 0.8%; state unemployment tax, 2.7%. Required: a. Prepare the journal entry to record salaries and employee withholding items for the month of January. b. Prepare the joumal entry to record employer payroll taxes for the month of January.

Baker, a branch manager, is allowed a bonus of 10% of income after bonus and tax.If the tax rate is 30% and income before bonus and tax is $200, 000, what is Mr.Baker's bonus?

Voluntary payroll deductions may include all of the following except

Exhibit 13-1 The Jung Company includes a premium in each box of its cereal.For four premiums plus $2.00, customers are entitled to a plastic doll that costs Jung $4.50 each.Jung expects 60% of the premiums to be redeemed.In 2010, Jung sold 500, 000 boxes of cereal and distributed 25, 000 dolls. - Refer to Exhibit 13-1.What is Jung's premium expense for 2010?

A client is involved in several different law suits that are all pending at the end of its fiscal year.The controller wants to know if the cases must be accrued in the accounts, disclosed in the footnotes, or neither of these. Required: Write an explanation of the criteria used to determine whether an accrual or a disclosure is required for loss and gain contingencies.

Adamson sells a product with a four-year warranty.Warranty costs are estimated as a percentage of sales as follows: Year of sale 1\% Year after sale 1\% Two years after sale 1\% Three years after sale 4\% Additional data: Watranty Year Sales Expenditures 2009 \ 50,000 \ 600 2010 60,000 800 2011 40,000 900 2012 70,000 2.500 Required: a. If the modified cash method is in use, what would be warranty expense for 2011 ? b. If the expense warraty acculat method is in use, what woutd be warranty expense for 2011 ? c. If the expense warraty acculal method is in use, what amount of liability for warranties would be chsclosed on the balance sheet on December 31, 2012?

Explain the deficiencies in accounting for warranty costs under the modified cash basis.