fin-acctg7-sm-ch08 - Chapter 8 Liabilities Short Exercises...

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Unformatted text preview: Chapter 8 Liabilities Short Exercises (10 min.) S 8-1 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X7 Mar. 31 Inventory.. 10,000 Note Payable, Short-Term.. 10,000 Purchased inventory by issuing a note payable. Dec. 31 Interest Expense ($10,000 .10 9/12).. 750 Interest Payable 750 Accrued interest expense. 20X8 Mar. 31 Note Payable, Short-Term... 10,000 Interest Payable. 750 Interest Expense ($10,000 .10 3/12).. 250 Cash. 11,000 Paid note payable and interest at maturity. Chapter 8 Liabilities 227 (5-10 min.) S 8-2 Req. 1 Balance Sheet December 31, 20X7 ASSETS LIABILITIES Current liabilities: Note payable, short-term.. $10,000 Interest payable ($10,000 .10 9/12). 750 Income Statement Year Ended December 31, 20X7 Revenues: Expenses: Interest expense ($10,000 .10 9/12).. $ 750 Req. 2 The 20X8 income statement will report: Interest expense ($10,000 .10 3/12). $250 Financial Accounting 7/e Solutions Manual 228 (10 min.) S 8-3 Req. 1 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Cash ($500,000 .10).... 50,000 Notes Receivable ($500,000 $50,000).... 450,000 Sales Revenue 500,000 To record sales on account. Warranty Expense ($500,000 .03) 15,000 Estimated Warranty Payable.. 15,000 To accrue warranty expense. Estimated Warranty Payable... 12,000 Cash.. 12,000 To pay warranty claims. Req. 2 Estimated Warranty Payable Bal. 10,000 12,000 15,000 Bal. 13,000 Chapter 8 Liabilities 229 (5-10 min.) S 8-4 Warranty expense = $15,000 The matching principle addresses this situation. The warranty expense for the year does not necessarily equal the years cash payments for warranties. Cash payments for warranties do not determine the amount of warranty expense for that year. Instead, the warranty expense is estimated and matched against revenue during the period of the sale, regardless of when the company pays for warranty claims. Student responses may vary. Financial Accounting 7/e Solutions Manual 230 (5-10 min.) S 8-5 1. These are contingent liabilities because at the time of the note Harley-Davidson, Inc., was not liable for any of these product losses. 2. In the United States, the contingency can become a real liability if the user of a Harley-Davidson product suffers a loss for which the company is responsible. Harley-Davidson must pay for all losses up to $3 million and all losses above $25 million. The company is insured against losses between $3 million and $25 million....
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fin-acctg7-sm-ch08 - Chapter 8 Liabilities Short Exercises...

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