Exam 14: Operating Liabilities and Contingencies

If management can only estimate a range for the loss,but cannot identify a single most likely outcome within that range,it should accrue the midpoint of the range.

The obligation for compensated absences includes amounts payable for future holidays.

The obligation for compensated absences should be valued at known future wage rates.

Accounting for product warranty costs under an assurance-type warranty ________.

Reducto Co.pays a weekly payroll of $95,000 that includes federal taxes withheld of $12,700,FICA taxes withheld of $7,270,and retirement withholdings of $6,000.What is the effect of assets and liabilities from this transaction?

Accounting requirements for AROs under IFRS are the same as U.S.GAAP requirements.

A provision for a contingent loss is considered to be probable if the probability of its occurrence is ________.

The obligation for compensated absences represents services to be performed by the employee in the future.

If a litigation-related loss is not probable,it cannot be accrued as a liability.

How is accounting for loss contingencies different under IFRS as compared to U.S.GAAP?

During 2015,Blevert Co.introduced a new line of machines that carry a three-year warranty against manufacturer's defects.Based on industry experience,warranty costs are estimated at 1% of sales in the year of sale,3% in the year after sale,and 5% in the second year after sale.Sales and actual warranty expenditures for the first three-year period were as follows: What amount should Blevert report as a liability at December 31,2017?

By recording a contingent gain,a company recognizes revenue when it is realized.

On September 1,Dondra purchased $9,500 of inventory items on credit with the terms 1/15,net 30,FOB destination.Freight charges were $200.Payment for the purchase was made on September 18.Assuming Dondra uses the perpetual inventory system and the net method of accounting for purchase discounts,what amount is recorded on September 1 as accounts payable from this purchase?

Asset retirement obligations must be legal obligations under both U.S.GAAP and IFRS.

In order to accrue a litigation-related liability,the company must be aware of the lawsuit before the company's year-end.

On October 1,2016,Super Soup Corp.began offering customers a Super Soup Spoon in return for 20 soup can labels.This offer expires on March 31,2017.The cost of each soup spoon is $1.50.Based on past experience,the company estimates that only 40% of the labels will be redeemed.During 2016,the company purchased 13,000 soup spoons.In 2016,it sold 600,000 cans of soup at $1.20 per can (the company uses the periodic inventory method).From these sales,180,000 labels were returned for redemption in 2016. a.Prepare the journal entry to record the purchase of 12,000 soup spoons. b.Prepare the journal entry to record the sale of 600,000 cans of soup. c.Prepare the journal entry to estimate the premium expense for 2016. d.Prepare the journal entry to record the redemption of 180,000 labels.

Whenever the probability of occurrence of a gain contingency is more likely than not,companies typically disclose that contingency in the footnotes.

How does IFRS accounting for asset retirement obligations different from U.S.GAAP accounting?

Dismantling an ocean oil-rig platform is an example of an asset retirement obligation.

What is the expense resulting from the increase in the carrying amount of an asset retirement obligation?