Mgmt 200 Assignment Soln 3-21-11

Mgmt 200 Assignment Soln 3-21-11 - Requirement 3 A $3...

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Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for March 21, 2011 Exercise 8-3 1. August 1, 2012 Debit Credit Cash 20,000,000 Notes Payable 20,000,000 (Issuance of notes payable) 2. December 31, 2012 Interest Expense ($20 million x 8% x 5/12) 666,667 Interest Payable 666,667 ( Interest expense incurred, but not paid ) 3. January 31, 2013 Notes Payable 20,000,000 Interest Expense ($20 million x 8% x 1/12) 133,333 Interest Payable ($20 million x 8% x 5/12) 666,667 Cash 20,800,000 ( Payment of notes payable and interest ) Exercise 8-12 Requirement 1 The loss contingency is probable and reasonably estimable, so it must be reported. Requirement 2 A $3 million loss should be reported in its 2012 income statement.
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Unformatted text preview: Requirement 3 A $3 million liability should be reported in its 2012 balance sheet. Requirement 4 The journal entry is as follows: Loss 3,000,000 Liability for Product Recall 3,000,000 (Record the loss contingency) Exercise 8-14 Requirement 1 Yes, it’s probable that costs for warranties will be incurred and based on previous experience the company can reasonably estimate the amount. Requirement 2 Warranty Expense ($500,000 x 5%) 25,000 Estimated Warranty Liability 25,000 (Loss contingency for warranties) Requirement 3 Estimated Warranty Liability 18,000 Cash 18,000 (Actual warranty expenditures) Requirement 4 Estimated Warranty Liability Payment 18,000 25,000 Expense 7,000 Balance...
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This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue.

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Mgmt 200 Assignment Soln 3-21-11 - Requirement 3 A $3...

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