Exam 9: Current Liabilities and Contingencies

On March 1, 2014 Giant Jumbo Clown Costumes borrowed money from their bank Second Friendly National Bank by issuing a $125,000, 180 day, non interest bearing note. The note was discounted to 13.5%. Compute the following: 1) How much money did Giant Jumbo receive? 2) What was the total amount of interest paid? 3) What is the effective 180 day interest rate on this note payable? (round to 4 decimals) 4) What is the approximate annual effective interest rate on this note payable? 5) Record the journal entries for the issuance of the note.

Which of the following statements is true?

Compensated absences include vacation, holiday, sick, or other activities for which the company pays its employees.

The Captain Company began operations on January 1, 2014. The company estimated that $0.10 of warranty costs will be incurred for each $1 of sales. In 2014, Captain's sales were $400,000, and payments arising out of warranty obligations were $18,000. Required: a. Prepare the 2014 journal entry(ies) for warranty expense and payments using the modified cash basis. b. Prepare the 2014 journal entry(ies) for warranty expense and payments using the expense warranty accrual method. c. Prepare the 2014 journal entries for sales and warranties using the sales warranty accrual method.

Cooper's inventory has been financed 100% with a long-term note. The note is coming due in 2014. Cooper has received a commitment from a new lender that permits five-year refinancing of debt up to an amount equal to 50% of inventory, which is expected to range between $14,000 and $20,000 in 2014. At December 31, 2013, how much of the company's currently maturing note payable can be classified as long-term debt?

Existing claims related to product warranties and litigation as of December 31, 2014, indicate that it is probable that a liability has been incurred. However, as of December 31, 2014, the exact amount of the obligation cannot be reasonably estimated, but a range of possible amounts has been determined. Based on these facts, an estimated loss contingency should be

Which payroll tax is imposed on both the employee and the employer?

Discuss how current GAAP requirements concerning accounting for compensated absences vary for vacation pay and sick pay.

Analysts use the quick ratio (also known as the acid test ratio) and the current ratio. The use of both ratios has become common because

As a tutor for beginning accounting students, you are reviewing the first balance sheet of one of your students. You make the comment that current liabilities can be classified into three groups and your student does not believe you. Required: Write a brief note that identifies the three groups, including an explanation of the nature of the accounts included in each group.

Bonus agreements can be structured in various ways, a typical bonus calculation could be income before or after taxes and before or after the bonus.

American Business Services introduced a new machine on January 1, 2014. The machine carried a two-year warranty against defects. The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale. Additional information follows: Actual Warranty \ 900 \ 50,000 2014 4,200 80,000 2015 If the expense warranty accrual method is used, what amount relating to warranties should be reflected on the December 31, 2015, balance sheet?

Which of the following statements regarding the gross and net methods for trade accounts payable is false?

Which is not a characteristic of a liability?

The Park Company is affected by the following contingencies at the end of 2014: 1. Expropriation of Park's foreign assets, valued at $\$ 3,000,000$ , appears reasonably possible. 2. Parks' legal counsel has concluded that it is probable that the company will be required to pay damages of $\$ 500,000$ in a lawsuit. 3. It appears remotely possible that a major customer will be unable to repay Parks on a note receivable for $\$ 100,000$ . 4. Parks' controller estimates that $\$ 250,000$ of the company's pledged receivables are likely to be uncollectible, and the lender will require Parks to honor the amounts. What total amount should Parks accrue for loss contingencies in 2014?

Current liabilities are obligations whose liquidation is reasonably expected to require the use of existing current assets or the creation of other current liabilities within

Exhibit 9-5 Backhoe Company estimates its annual warranty expense at 4% of annual net sales. The following information relates to the calendar year 2013: \ 3,000,000 Net sales Estimated liability under warranties: 100,000 January 1, 2013 80,000 December 31,2013 , after year-end adjustment -Refer to Exhibit 9-5. The amount of warranty expense for 2013 is

The ability to utilize financial resources and to adapt to changes in the business environment is referred to as a company's financial flexibility.

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 FASB.

On December 31, 2014, the Wagner Company had the following liabilities: \1 50,000 Trade accounts payable 11 \% note payable, maturing in equal installments of \ 40,00 120,000 per year on December 30 through 2017 12\% note payable, issued October 15,2014 , maturing 70,000 Februa1y 15,20115 On December 31, Wagner signed a binding agreement with its bank to refinance the 12% note through February 14, 2017, at a variable interest rate. What is the amount of Wagner's current liabilities on December 31, 2014?