Appendix E - APPENDIXE Brief Exercises 1 Alternate Problems...

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APPENDIX E Other Significant Liabilities ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Exercises Problems Alternate Problems 1. Describe the accounting and disclosure require- ments for contingent lia- bilities. 1, 2 1 1, 2 1 1 2. Contrast the accounting for operating and capital leases. 3, 4, 5 2 3 2 2 3. Identify additional fringe benefits associated with employees' compensa- tion. 6, 7, 8, 9, 10, 11 3 4 Appendix E-1
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ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) E-1 Prepare current liabilities entries, adjusting entries, and current liability section. Moderate 30-40 E-2 Analyze three different lease situations and prepare journal entries. Moderate 20-30 E-3 Prepare current liability entries, adjusting entries, and current liability section. Moderate 30-40 E-4 Analyze three different lease situations and prepare journal entries. Moderate 20-30
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ANSWERS TO QUESTIONS 0 1. A contingent liability is an existing situation involving uncertainty as to a possible obligation which will be resolved when one or more future events occur or fail to occur. Contingent liabilities are only recorded in the accounts if they are probable and the amount is reasonably estimable. Warranty costs are a contingent liability usually recorded in the accounts since they are both probable in in- currence and subject to estimation. 0 2. If an event is only reasonably possible, then only note disclosure is required. If the possibility of a contingent liability occurring is only remote, then neither recording in the accounts nor note dis- closure is required. 0 3. (a) A lease agreement is a contract in which the lessor gives the lessee the right to use an asset for a specified period in return for one or more periodic rental payments. The lessor is the owner of the property and the lessee is the renter or tenant. (b) The two most common types of leases are operating leases and capital leases. (c) In an operating lease the property is rented by the lessee and the lessor retains all ownership risks and responsibilities. A capital lease transfers substantially all the benefits and risks of ownership from the lessor to the lessee, so that the lease is in effect a purchase of the property. 0 4. This lease would be reported as an operating lease. In an operating lease, each payment is debited to Rent Expense. Neither a leased asset nor a lease liability is capitalized. 0 5. In a capital lease agreement, the lessee records the present value of the lease payments as an asset and a liability. Therefore, Rodriguez Company would debit Leased Equipment for $186,300 and credit Lease Liability for the same amount. 0 6. Three additional types of fringe benefits are: (1) Paid absences C vacation pay, sick pay, and paid holidays. (2)
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Appendix E - APPENDIXE Brief Exercises 1 Alternate Problems...

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