Solutions to BS practice problems

Solutions to BS practice problems - Solutions to Balance...

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Unformatted text preview: Solutions to Balance Sheet Practice Problems EXERCISE 5-10 (1520 minutes) (a) In order for a liability to be reported for threatened litigation, the amount must be probable and payment reasonably estimable. Since these conditions are not met an accrual is not required. (b) A current liability of $150,000 should be recorded. (c) A current liability for accrued interest of $6,000 ($900,000 X 8% X 1/12) should be reported. Also, the $900,000 note payable should be a current liability if payable in one year. Otherwise, the $900,000 note payable would be a long-term liability. (d) Although bad debts expense of $200,000 should be debited and the allowance for doubtful accounts credited for $200,000, this does not result in a liability. The allowance for doubtful accounts is a valuation account (contra asset) and is deducted from accounts receivable on the balance sheet. (e) A current liability of $80,000 should be reported. The liability is recorded on the date of declaration. (f) Customer advances of $110,000 ($160,000 $50,000) will be reported as a current liability. PROBLEM 5-3 EASTWOOD COMPANY Balance Sheet December 31, 2010 Assets Current assets Cash .......................................................Cash ....
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This note was uploaded on 11/05/2011 for the course ACCT 401 taught by Professor Winchel during the Spring '10 term at South Carolina.

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Solutions to BS practice problems - Solutions to Balance...

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