Exam 30: Other Significant Liabilities

Ryan Corporation entered into the following transactions: 1. Hewitt Car Rental leased a car to Ryan Corporation for one year. Terms of the operating lease call for monthly payments of $750. 2. On January 1, 2017, Ryan Corporation entered into an agreement to lease 20 machines from Meeks Corporation. The terms of the lease agreement require an initial payment of $210,000 and then three annual rental payments of $210,000 beginning on December 31, 2017. The present value of the three rental payments is $522,238. The lease is a capital lease. Instructions Prepare the appropriate journal entries to be made by Ryan Corporation in January related to the lease transactions.

Sam Myers sells televisions with a 2-year warranty. Past experience indicates that 2% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is estimated to be $75 per unit. During 2018, 9,000 units were sold at an average price of $400. During the year, repairs were made on 50 units at a cost of $3,900. Instructions Prepare journal entries to record the repairs made under warranty and estimated warranty expense for the year.

In concept, the estimating of Warranty Expense when products are sold under warranty is similar to the estimating of Bad Debts Expense based on credit sales.

In a lease contract,

Which of the following statements concerning leases is true?

Marin Company sells 9,000 units of its product in 2018 for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 180 units for a total cost of $9,000. What amount should Marin Company report as Warranty Expense in its 2018 income statement?

A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called

Postretirement benefits are accounted for on a cash basis.

Disclosure of a contingent liability is usually made

If the present value of future lease payments equals or exceeds 90% of the fair value of the leased property, the

If a liability is dependent on a future event, it is called a

Contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

An operating lease transfers substantial control of the asset to the lessee.

A capital lease requires the lessee to record the lease as a purchase of an asset.

Presented below are three different aircraft lease transactions that occurred for Western Airways in 2017. All the leases start on January 1, 2017. In no case does Western receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option. Instructions (a) Which of the above leases are operating leases and which are finance leases? Explain your answer. (b) How should the lease transaction with Utah Insurance be recorded in 2017? (c) How should the lease transaction with Laine Leasing be recorded in 2017?

The renting of an apartment is an example of a finance lease.

Warranty expenses are reported on the income statement as

The accounting for warranty costs is based on the

Match the items below by entering the appropriate code letter in the space provided. A. Finance lease B. Contingent liability C. Operating lease D. Defined-benefit plan E. Defined-contribution plan ____ 1. A contractual arrangement that gives the lessee temporary use of property. ____ 2. The cash paid by the employer to the pension plan is defined. ____ 3. A contractual arrangement which is in effect a purchase of property. ____ 4. A pension plan where employee receipts after retirement are defined. ____ 5. A potential liability that may become an actual liability in the future.

An employer's estimated cost for postretirement benefits for its employees should be