Exam 13: Current Liabilities and Contingencies

Parton owes $2 million that is due on February 28. The company borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance. How much of the $2 million note is classified as long-term in the December 31 financial statements.

A loss contingency can be accrued when

Total payroll of Walnut Co. was $1,840,000, of which $320,000 represented amounts paid in excess of $106,800 to certain employees. The amount paid to employees in excess of $7,000 was $1,440,000. Income taxes withheld were $450,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the F.I.C.A. tax is 7.65% on an employee's salaries and wages to $106,800 and 1.45% in excess of $106,800. Instructions (a) Prepare the journal entry for the salaries and wages paid. (b) Prepare the entry to record the employer payroll taxes.

For which of the following areas a provision may be recognized in the financial statement?

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

Neer Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be

Qualpoint pays a weekly payroll of $170,000 that includes federal taxes withheld of $25,400, FICA taxes withheld of $15,780, and 401(k) withholdings of $18,000. What is the effect of assets and liabilities from this transaction?

Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $225 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? (assume accrual method)

For purposes of recognizing a provision "probable" is defined as more likely than not

Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred.

A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2014, they made $21 per hour and in 2015 they made $24 per hour. During 2015, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2014 and 2015 balance sheets, respectively?

Jump Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 85,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities?

Accrued liabilities are disclosed in financial statements by

What is the relationship between present value and the concept of a liability?

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except

Which of the following is an example of a contingent liability?

A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 3,000,000 packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2014 financial statements dated December 31?

Paying a current liability with cash will always reduce the current ratio.

On September 1, 2014, Halley Co. issued a note payable to Fidelity Bank in the amount of $1,800,000, bearing interest at 10%, and payable in three equal annual principal payments of $600,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2015. At December 31, 2015, Halley should record accrued interest payable of

Under what conditions is an employer required to accrue a liability for sick pay?