Chapter_11_Solutions

Chapter_11_Solutions - Chapter 11 Current Liabilities and...

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Chapter 11 Current Liabilities and Payroll Quick Check Answers: 1. c 3. c 5. d 7. d 9. a 2. a 4. b 6. d 8. a 10. b Explanations: 2. a. Interest payable is $800 ($10,000 × .08) 3. c. Sales tax payable is $3,000 ($100,000 × .03) 4. b. Salary Expense and Salary Payable are $4,800 ($8,000 × 3/5) 6. d. Estimated warranty payable is $1,500, computed as follows: Beginning Estimated warranty payable……. . $ 1,000 Add: Warranty expense for 2008 ($100,000 × .03)……………………… 3,000 Less: Payment of warranties during 2008. .. (2,500 ) Ending Estimated warranty payable………… $ 1,500 8. a. $5,580 ($90,000 × .062) Chapter 11 Current Liabilities and Payroll 193
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Short Exercises (10 min.) S 11-1 Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT 2006 a. Dec. 31 Interest Expense ($8,000 × .09 × 6/12) 360 Interest Payable 360 Accrued interest expense. 2007 b. June 30 Note Payable, Short-Term 8,000 Interest Payable 360 Interest Expense ($8,000 × .09 × 6/12) 360 Cash 8,720 Paid note and interest at maturity. Accounting 7/e Solutions Manual 194
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(5-10 min.) S 11-2 Balance Sheet (Partial) December 31, 2006 ASSETS LIABILITIES Current liabilities: Note payable, short-term $8,000 Interest payable ($8,000 × .09 × 6/12) 360 Income Statement (Partial) Year Ended December 31, 2006 Revenues: Expenses: Interest expense ($8,000 × .09 × 6/12) $360 Chapter 11 Current Liabilities and Payroll 195
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(10 min.) S 11-3 Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Cash ($500,000 × .30) 150,000 Notes Receivable ($500,000 $150,000) 350,000 Sales Revenue 500,000 To record sales on account. Warranty Expense ($500,000 × .05) 25,000 Estimated Warranty Payable 25,000 To accrue warranty expense. Estimated Warranty Payable 21,000 Cash 21,000 To pay warranty claims. Req. 2 Estimated Warranty Payable 21,000 25,000 Bal. 4,000 Accounting 7/e Solutions Manual 196
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S 11-4 Warranty expense = $25,000 The warranty expense for the year does not necessarily equal the year’s cash payments for warranties. The matching principle addresses this situation. 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 the warranty claims. (5-10 min.) S 11-5 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. 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. Chapter 11
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This note was uploaded on 05/05/2010 for the course BUSINESS 71395 taught by Professor Brown during the Spring '09 term at Miss. College.

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Chapter_11_Solutions - Chapter 11 Current Liabilities and...

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