Exam 9: Current Liabilities and Contingent Obligations

Mr. Luigi, the plant supervisor of Super Brothers Corp. is allowed a bonus of 4% of income after bonus and tax. For 2015, the tax rate is 30% and income before bonus and tax amounts to $1,200,000. Required: Compute the amount of Mr. Luigi's 2015 bonus.

Liabilities are defined as probable future sacrifices of economic benefits arising from present obligations of a company to provide services or assets in the future as defined by the FASB.

Candy's Video includes the amount of sales taxes collected directly in the price charged for merchandise, and the total amount is credited to Sales. During January, Sales was credited for $310,117.50. The January 31 adjusting entry to account for a 5% state sales tax should be

Beta, Inc. had $10,000 of notes payable coming due on January 10, 2016. As of December 31, 2015, Beta was negotiating with the lender to extend the due date of the note by two additional years. On January 5, 2016, the company used $2,000 of excess cash to pay off part of the note. On January 8, 2016, the refinancing was completed, the $2,000 payment was refunded and added back to the note balance, and the note was extended for another two years. On Beta's December 31, 2015 balance sheet, which was issued on April 1, 2016, how much of the $10,000 note should be shown as current?

Assets and liabilities with differing implications for financial flexibility should be reported together.

Exhibit 9-5 Backhoe Company estimates its annual warranty costs to be 4% of annual net sales. Backhoe uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale. The following information relates to the calendar year 2015: -Refer to Exhibit 9-5. The amount of warranty expense for 2015 is

When selecting within a range of outcome estimates for probable contingencies, the requirements of IFRS and GAAP, respectively, are to accrue what amount in the range?

With regard to liabilities, liquidity refers to

Conceptually, all liabilities should be reported on the balance sheet at

Listed below are several types of contingencies for the Kellher Company: a. The company has signed as a guarantor of a loan that one of its key suppliers has taken out with a local bank. The probability of the supplier defaulting on the note is remote. b. The company is suing another firm for trademark infringement, and the probability of winning the case is excellent. The amount of any award can be reasonably estimated. c. The company has a significant distribution center in another country where it is reasonably possible that the warehouse will be expropriated. The amount of the loss can be reasonably estimated. d. The company has a manufacturing plant in California near a major earthquake fault line. The company has no earthquake insurance, and it is reasonably possible that a quake will occur. The amount of any loss can be reasonably estimated. e. The company is involved in another lawsuit where it is reasonably possible that the company will be found at fault, but the amount of the loss cannot be reasonably estimated. Required: Indicate whether the Kellher Company should make an accrual, a footnote disclosure, or neither of these for each contingency.

Concerning accounting for warranties, which of the following statements is false?

Marble Co. employs a staff of 35 at a total monthly gross pay of $75,000. The company withholds federal income tax at 20% and state income tax at 3% for all employees. In addition, the following tax rates apply: FICA tax, 7.65%; federal unemployment tax, 0.8%; state unemployment tax, 2.7%. Required: a. Prepare the journal entry to record salaries and employee withholding items for the month of January. Round numbers up to the next whole dollar.) b. Prepare the journal entry to record employer payroll taxes for the month of January.

On January 1, 2017, Sweet Treats Inc. began offering customers a cash rebate of $4.00 if the customer mails in 5 proof-of-purchas labels from its boxes there is one label in each box). Based on historical experience, the company estimates that 30% of the label will be redeemed. During 2017, the company sold 6,000,000 boxes at $2 per box. From these sales, 900,000 labels were redeemed in 2017, 750,000 labels were redeemed in 2018, and the remaining labels were never redeemed. Required: 1. Prepare the journal entries related to the sale of the Sweet Treats boxes and the cash rebate offer for 2017 and 2018.

All of the following are examples of legal liabilities except

Natural Hair reports the following payroll information for May, 2015: Tax rate information follows: FICA $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 7.0% Federal unemployment $\quad$ 0.8% State employment $\quad$ $\quad$ 5.4% Assume that all wages are subject to all payroll taxes. Required: Prepare the journal entries to record the payment of the May, 2015, payroll and to record the payroll taxes imposed on the employer.

On December 31, 2016, the Wagner Company had the following liabilities: On December 31, Wagner signed a binding agreement with its bank to refinance the 12% note through February 14, 2019, at a variable interest rate. What is the amount of Wagner's current liabilities on December 31, 2016?

Exhibit 9-2 In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale. -Refer to Exhibit 9-2. At what amount should the company record warranty expense for 2015?

According to current GAAP, which of the following is not a condition suggesting that an accrual for vacation pay should be made?

Exhibit 9-3 John Company includes three coupons in each package of cookies it sells. In exchange for 20 coupons, a customer will receive a cookie sheet. John estimates that 30% of the coupons will be redeemed. In 2016, John sold 4,000,000 boxes of cookies and purchased 150,000 Cookie sheets at $2.50 each. During the year, 970,000 coupons were redeemed. -Refer to Exhibit 9-3. What amount should John record as premium expense for 2016?

On December 1, 2015, Sons, Inc. borrowed money at the bank by signing a 90-day non-interest-bearing note for $40,000 that was discounted at 12%. Which of the following entries is not correct?