ch13 - Solution to Chapter 13 BE 13-1; E13-9,11,18; P...

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Unformatted text preview: Solution to Chapter 13 BE 13-1; E13-9,11,18; P 13-2,6,8,9 Brief Exercise 13-1 Cash ............................................................... 60,000,000 Notes payable.............................................. 60,000,000 Interest expense ($60,000,000 x 12% x 3 / 12 ) ....... 1,800,000 Interest payable.......................................... 1,800,000 Exercise 139 Normally, shortterm debt (payable within a year) is classified as current liabilities. However, when such debt is to be refinanced on a longterm basis, it may be included with longterm liabilities. The narrative indicates that Sprint has both (1) the intent and (2) the ability ("existing longterm credit facilities") to refinance on a longterm basis. Thus, Sprint reported the debt as longterm liabilities. 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 ______________________________________________________ 150,000 Estimated liability Actual expenditures37,500 112,500 Balance 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....
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This note was uploaded on 08/12/2011 for the course ACCT 505 taught by Professor Doe during the Spring '11 term at Keller Graduate School of Management.

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ch13 - Solution to Chapter 13 BE 13-1; E13-9,11,18; P...

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