Exam 30: Other Significant Liabilities

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 will be reported on Marin Company's balance sheet as Warranty Liability on December 31, 2018?

Sandra Sikes sells exercise machines for home use. The machines carry a 2-year warranty. Past experience indicates that 5% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is $40 for labor and $50 for parts per unit. During 2018, 3,000 exercise machines were sold at an average price of $800. During the year, 95 of the machines that were sold were repaired at the average price per unit. Instructions (a) Prepare the journal entry to record the repairs made under warranty. (b) Prepare the journal entry to record the estimated warranty expense for the year.

When vacation benefits are paid, Vacation Benefits Expense is debited.

Which of the following items would not be identified if a contingent liability were disclosed in a financial statement note?

A contingent liability should be recorded in the accounts if it is ________________ that the contingency will occur and the amount is ________________.

Larson Company has twenty employees who each earn $120 per day. If they accumulate vacation time at the rate of 1.5 vacation days for each month worked, the amount of vacation benefits that should be accrued at the end of the month is

A contingent liability is a liability that may occur if some future event takes place.

Roberts Company is preparing monthly adjusting entries at December 31. An analysis reveals the following: 1. During December, Roberts Company sold 3,000 units of a product that carries a 60-day warranty. The sales for this product totaled $100,000. The company expects 4% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $20. 2. The company has been sued by a disgruntled employee. Legal counsel believes that it is reasonably possible that the company will have to pay $200,000 in damages. 3. The company has been named as one of several defendants in a $400,000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages. 4. Employees earn vacation pay at a rate of 1 day per month. During December, ten employees qualify for vacation pay. Their average daily wage is $80 per employee. Instructions Prepare adjusting entries, if required, for each of the four items.

The paid absence that is most commonly accrued is

The accounting for warranty cost is based on the expense recognition principle, which requires that the estimated cost of honoring warranty contracts should be recognized as an expense

A contingency that is remote

If a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur, the contingent liability

Hutton Cape Company, which prepares annual financial statements, is preparing adjusting entries on December 31. Analysis indicates the following: 1. The company is the defendant in an employee discrimination lawsuit involving $50,000 of damages. Legal counsel believes it is unlikely that the company will have to pay any damages. 2. Employees are entitled to one day's vacation for each month worked. The company employs 50 people who earn $120 per day and 30 who earn $160 per day. All employees worked the entire year. 3. The company is a defendant in a $500,000 product liability lawsuit. Legal counsel believes that the company probably will have to pay the amount requested. 4. The company has a defined benefit pension plan in which total pension expense for December is $50,000. The company funds one half of the expense and records a liability or the balance due. Instructions Prepare any adjusting entries necessary at the end of the year.

Which of the following is not a condition which would require the recording of a lease contract as a finance lease?

In a defined contribution plan, an employer only recognizes pension expense for the amount that the employer is required to contribute under the plan.

A lease may be classified as an ______________ lease or as a ____________ lease.

In a finance lease, the amount capitalized is the

Repair costs incurred in honoring warranty contracts should be debited to Warranty Liability.

Postretirement benefits consist of payments by employers to retired employees for