7. M Corp. has an employee benefit plan for compensated absences that gives employees 15 paid
vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive
payment in lieu of vacation days. At December 31, 2011, M's unadjusted balance of liability for
compensated absences was $30,000. M estimated that there were 200 vacation days available at
December 31, 2011. M's employees earn an average of $150 per day. In its December 31, 2011,
balance sheet, what amount of liability for compensated absences is M required to report?
The liability for compensated absences at December 31, 2011, is $30,000 for the 200 vacation
days times $150 per day.
8. Lake Co. receives nonrefundable advance payments with special orders for containers
constructed to customer specifications. Related information for 2011 is as follows ($ in millions):
What amount should Lake report as a current liability for advances from customers in its Dec.
31, 2011, balance sheet?
$110 + 195 - 180 - 45 = $80
9. Peterson Photoshop sold $1000 of gift cards on a special promotion on October 15, 2011, and
sold $1500 of gift cards on another special promotion on November 15, 2011. Of the cards sold
in October, $100 were redeemed in October, $250 in November, and $300 in December. Of the
cards sold in November, $150 were redeemed in November and $350 were redeemed in
December. Peterson views the probability of redemption of a gift card as remote if the card has
not been redeemed within two months. At 12/31/2011, Peterson would show an unearned
revenue account for their gift cards with a balance of: