Exam 9: Current Liabilities, Contingencies, and the Time Value of Money

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Josh and Sara want to buy a house in 4 years. If the house will cost $180,000, how much must they deposit at the end of every year for the next 4 years at 5% compounded annually in order to buy the house?

The present value is the value today of a single amount to be paid or received at a specific date in the future.

Below are several independent items listed for which the outcome of events is unknown at year-end, December 31, 2015. a. Maldova Company had a barge that leaked oil into the waters surrounding Alaska. The company's legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss. b. It is alleged by Maldova Company that Argo Company has infringed on its trademark, during a recent advertising campaign. Maldova is suing Argo and its legal experts believe that the suit will result in an award of $750,000 in Maldova's favor. c. Maldova offers 2-year warranties on the equipment it sells and believes that 5% of its equipment will require warranty repairs. d. A $35 coupon, good for one year is offered by Maldova during December. At December 31, approximately 10% of the coupons have been redeemed and it is estimated that there will be a total redemption rate of 45%. e. Maldova Company has been sued by the federal government for EPA violations. The company's legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss REQUIRED: 1. Identify which of the items a through e should be recorded at year-end. 2. Identify which of the items a through e should not be recorded but should be disclosed in the year-end financial statements. a. Maldova Company had a barge that leaked oil into the waters surrounding Alaska. The company's legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss. b. It is alleged by Maldova Company that Argo Company has infringed on its trademark, during a recent advertising campaign. Maldova is suing Argo and its legal experts believe that the suit will result in an award of $750,000 in Maldova's favor. c. Maldova offers 2-year warranties on the equipment it sells and believes that 5% of its equipment will require warranty repairs. d. A $35 coupon, good for one year is offered by Maldova during December. At December 31, approximately 10% of the coupons have been redeemed and it is estimated that there will be a total redemption rate of 45%. e. Maldova Company has been sued by the federal government for EPA violations. The company's legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss REQUIRED:

A company's weekly payroll amounts to $50,000 and payday for the week is every Friday. Employees work five days per week, Monday through Friday. The appropriate journal entry was recorded at the end of the accounting period, Monday, March 31, 2014. What amount is wages expense for April for the payday, Friday, April, 4, 2014?

When a company uses coupon or premium offers in conjunction with the sale of its products, there is no need to record any contingent liability.

Which of the following is not classified as a noncurrent liability?

Match each of the following terms pertaining to liabilities to their definitions. -A liability that has been incurred but has not been paid as of the balance sheet date.

Assume the current ratio is 3 to 1. Estimating the warranties expense on the period's sales would cause the current ratio to

Which of the following statements is true of liabilities?

Match each of the following terms pertaining to liabilities to their definitions. -Amounts owed for the purchase of inventory, goods, or services acquired in the normal course of business.

Refer to the data for Valance & Company. REQUIRED: 1 Give a possible explanation for each change in the liabilities listed in the cash flow statement. Do you think these changes are beneficial for Valance? Why or why not? 2 If there were a balance in the dividends payable account at the end of the year, would this appear in the operating activities category of the cash flow statement? Why or why not?

If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays March 12, then the amount paid to the seller would be

Which of the following statements regarding contingencies is true?

In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000. $20,000 in claims was actually incurred during the year to honor their warranty. What was the warranty expense for 2015?

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. The present value of $7,000 to be received in 7 years at 7% compounded annually is

Almost all current liabilities appear within the Activities category of the Statement of Cash Flows.

Auto Designs, Inc. Use the selected data from the comparative financial statements for Auto Designs, Inc. to answer the questions that follow. -Refer to the account information for Auto Designs, Inc. REQUIRED: 1 Calculate percentage changes in accounts payable and income taxes payable. Give a possible explanation for the changes in these accounts. 2 By how much did Auto Designs' long­term and short­term borrowings change from 2014 to 2015? Give a possible explanation for the change in debt. What other financial statement would be useful in analyzing the change in borrowings? Why?

A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a

You are interested in accumulating $10,000 so that you can take a cruise in 3 years. If you trying to solve for the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents:

A note payable that is due in six months is a current liability.