Exam 13: Current Liabilities, Provisions, and Contingencies

In 2010, Payton Corporation began selling a new line of products that carry a two-year warranty against defects.Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: What is the estimated warranty liability at the end of 2011?

On June 20, Ying Company purchased goods from Chee-Chow Company for HK$30,000, terms 2\10, n\30.The invoice was paid on June 27.The company uses a perpetual inventory system and records purchases gross.The June 27 journal entry to record payment of the account would include:

LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and $1.00.The company estimates that 60% of the boxtops will be redeemed.In 2010, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls.If the bowls cost LeMay Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2010?

Ermler Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 60,000 ordinary shares.If the shares are sold for $20 per share subsequent to the statement of financial position date, but before the statement of financial position is issued, what amount of short-term debt could be excluded from current liabilities?

Contingent assets are not reported in the statement of financial position.

Which of the following should not be included in the current liabilities section of the statement of financial position?

Use the following information for questions. Stine Co.is a retail store operating in a state with a 6% retail sales tax.The retailer may keep 2% of the sales tax collected.Stine Co.records the sales tax in the Sales account.The amount recorded in the Sales account during May was $148,400. -The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is

Recycle Exploration is involved with innovative approaches to finding energy reserves.Recycle recently built a facility to extract natural gas at a cost of $15 million.However, Recycle is also legally responsible to remove the facility at the end of its useful life of twenty years.This cost is estimated to be $21 million (the present value of which is $8 million).What is the journal entry required to record the environmental liability?

Which of the following best describes the cash-basis method of accounting for warranty costs?

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

A company gives each of its 50 employees (assume they were all employed continuously through 2010 and 2011) 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 2010, they made $14 per hour and in 2011 they made $16 per hour.During 2011, 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 2010 and 2011 balance sheets, respectively?

Contingent assets are disclosed when an inflow of economic benefits is considered more likely than not to occur.

Edge Company's salaried employees are paid biweekly.Occasionally, advances made to employees are paid back by payroll deductions.Information relating to salaries for the calendar year 2011 is as follows: At December 31, 2011, what amount should Edge report for accrued salaries payable?

Hatcher Corporation sold 10,500 dishwashers for £1,100 each during 2011.The dishwashers are under warranty for one year following the sale.Maintenance on the dishwashers during the warranty period averages £90 each.Actual warranty costs incurred during 2011 for units sold that year were £296,000.The statement of financial position at year end will report a related liability of:

Purest owes $1 million that is due on February 28.The company borrows $800,000 on February 25 (5-year note) and uses the proceeds to pay down the $1 million note and uses other cash to pay the balance.How much of the $1 million note is classified as long-term in the December 31 financial statements?

IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company's chance of losing a lawsuit.

Purchase Retailer made cash sales during the month of October of $132,600.The sales are subject to a 6% sales tax that was also collected.Which of the following would be included in the summary journal entry to reflect the sale transactions?

Nance Company estimates its annual warranty expense as 4% of annual net sales.The following data relate to the calendar year 2010: Which one of the following entries was made to record the 2010 estimated warranty expense?

Short-term debt obligations are classified as current liabilities unless an agreement to refinance is completed before the financial statements are issued.

Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?