Exam 13: Operating Liabilities and Contingencies

Bull's Eye Department Stores, Inc. records $200,000 in gift card sales and receives cash in year 1. Customers redeemed 10% of the gift cards to purchase merchandise in year 2. Which of the following would be included in the summary journal entry to reflect the year 2 redemption transactions?

Under U.S. GAAP, what is the expense resulting from the increase in the carrying amount of an asset retirement obligation?

Accounting requirements for AROs under IFRS are the same as U.S. GAAP requirements.

If management can only estimate a range for the loss, but cannot identify a single most likely outcome within that range, under U.S. GAAP it should accrue the midpoint of the range.

Bull's Eye Department Stores, Inc. records $170,000 in gift card sales and receives cash in year 1. Customers redeemed 25% of the gift cards to purchase merchandise in year 1. The company estimates breakage as 13% and uses the proportional method. How much breakage revenue should be recorded at the end of year 1? (Round any intermediary percentages two decimal places, X.XX%. Round your final answer to the nearest dollar.)

On September 1, Dondra purchased $9,000 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $500. Payment for the purchase was made on September 18. Assuming Dondra uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded on September 1 as accounts payable from this purchase?

Accounts payable are formal, written promises to pay a certain sum of money on a specified date and typically specify a stated rate of interest.

Which of the following is not an operating liability?

Distinguish between an interest-bearing note and a non-interest-bearing note. How are the proceeds computed for a non-interest-bearing note?

Which of the following is the proper way to report a probable contingent asset?

During 2017, Blevert Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 1% of sales in the year of sale, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: 2017 \5 00,000 8,000 2018 1,600,000 20,000 2019 \4 ,400,000 \1 28,000 What amount should Blevert report as a liability at December 31, 2018?

What is a loss contingency? What exactly is the company uncertain about?

What is breakage and how does it relate to the accounting for sales of gift cards? Describe two methods for estimating the amount of breakage.

When a company can estimate a range for the loss, but cannot identify a single most-likely outcome within that range, IFRS requires that it accrue the midpoint of the range while U.S. GAAP requires that it accrue the minimum value of the range.

According to U.S. GAAP, asset retirement obligations are ________.

Reducto Co. pays a weekly payroll of $95,000 that includes federal taxes withheld of $12,000 FICA taxes withheld of $7,250, and retirement withholdings of $6,000. What is the effect on assets and liabilities from this transaction?

Under IFRS, the obligation for compensated absences should be valued at known future wage rates.

Which of the following situations typically results in unearned revenues?

Bull's Eye Department Stores, Inc. records $180,000 in gift card sales and receives cash in year 1. Customers redeemed 20% of the gift cards to purchase merchandise in year 1. The company estimates breakage as 12% and uses the proportional method. What is the proper treatment for redemption of the gift cards and recognition of breakage?

Under IFRS, estimated costs of asset retirement obligations are discounted using an after-tax interest rate.