W5 homework answers

W5 homework answers - Chapter 13 Homework Exercise 13-11...

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Chapter 13 Homework Exercise 13-11 Requirement 1 This is a loss contingency. There may be a future sacrifice of economic benefits (cost of satisfying the warranty) due to an existing circumstance (the warranted awnings have been sold) that depends on an uncertain future event (customer claims). The liability is probable because product warranties inevitably entail costs. A reasonably accurate estimate of the total liability for a period is possible based on prior experience. So, the contingent liability for the warranty is accrued. The estimated warranty liability is credited and warranty expense is debited in 2009, the period in which the products under warranty are sold. Requirement 2 2009 Sales Accounts receivable. ........................................................ 5,000,000 Sales . ........................................................................... 5,000,000 Accrued liability and expense Warranty expense (3% x $5,000,000). ............................. 150,000 Estimated warranty liability . ....................................... 150,000 Actual expenditures Estimated warranty liability . ........................................... 37,500 Cash, wages payable, parts and supplies, etc. . ........... 37,500 Requirement 3 Warranty Liability __________________________________________ 150,000Estimated liability Actual expenditures 37,500 112,500Balance
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Problem 13-12 Requirement 1 Calculation of frequent flyer liability: Transit’s frequent flyer program is offered in order to enhance revenues. Under the matching principle, the cost is properly recognized as an operating expense in the year sales are made (travel miles are earned). The 2009 expense is: 30% x $90 million = $27 million. The year-end liability is: Beginning of 2009 $60,000 Redemption (12,000 ) $48,000 2009 expense 27,000 End of 2009 $75,000 Current portion (20%) (15,000 ) Long-term portion $60,000 Requirement 2 The requirement to classify currently maturing debt as a current liability includes debt that is callable by the creditor in the upcoming year – even if the debt is not expected to be called. So, the entire $90 million debt is a current liability. Requirement 3
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This note was uploaded on 10/12/2010 for the course ACCT 305 taught by Professor Rans during the Summer '10 term at DeVry Decatur.

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W5 homework answers - Chapter 13 Homework Exercise 13-11...

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