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2811422515 - Chapter 8 Current and Long-Term Liabilities...

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Chapter 8 Current and Long-Term Liabilities Check Points (10 min.) CP 8-1 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X5 Mar. 31 Inventory………………………………………... 8,000 Note Payable, Short-Term………………… 8,000 Purchased inventory by issuing a one-year, 10% note payable. Dec. 31 Interest Expense ($8,000 × .10 × 9/12) ……... 600 Interest Payable…………………………….. 600 Adjusting entry to accrue interest expense at year end. 20X6 Mar. 31 Note Payable, Short-Term…………………… 8,000 Interest Payable……………………………….. 600 Interest Expense ($8,000 × .10 × 3/12) ……... 200 Cash…………………………………………... 8,800 Paid note payable and interest at maturity.. Chapter 8 Current and Long-Term Liabilities 23
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(5-10 min.) CP 8-2 Req. 1 Balance Sheet December 31, 20X5 ASSETS LIABILITIES Current liabilities: Note payable, short-term…$8,000 Interest payable ($8,000 × .10 × 9/12)……. 600 Income Statement Year Ended December 31, 20X5 Revenues: Expenses: Interest expense ($8,000 × .10 × 9/12)…………………. $ 600 Req. 2 The 20X6 income statement will report: Interest expense ($8,000 × .10 × 3/12)…….. $200 Financial Accounting 6/e Solutions Manual 24
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(10 min.) CP 8-3 Req. 1 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Cash ($500,000 × .20)…………………..…. 100,000 Notes Receivable ($500,000 – $100,000). 400,000 Sales Revenue………………………….. 500,000 To record sales on account. Warranty Expense ($500,000 × .05) …….. 25,000 Estimated Warranty Payable……….… 25,000 To accrue warranty expense. Estimated Warranty Payable…………….. 22,000 Cash…………………………………….… 22,000 To pay warranty claims. Req. 2 Estimated Warranty Payable Bal. 7,000 22,000 25,000 Bal. 10,000 This amount must be estimated because the company does not know in advance exactly how much it must pay to satisfy customers’ warranty claims. Chapter 8 Current and Long-Term Liabilities 25
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(5-10 min.) CP 8-4 Warranty expense = $25,000 The matching principle addresses this situation. The warranty expense for the year does not necessarily equal the year’s cash payments for warranties. Cash payments for warranties do not determine the amount of warranty expense for that year. Instead, the warranty expense is estimated and matched against revenue during the period of the sale, regardless of when the company pays for warranty claims. (5-10 min.) CP 8-5 1. These are contingent liabilities because at the time of the note Harley-Davidson, Inc., was not liable for any of these product losses. 2. In the United States, the contingency can become a real liability if the user of a Harley-Davidson product suffers a loss for which the company is responsible. Harley-Davidson must pay for all losses up to $3 million and all losses above $25 million. The company is insured against losses between $3 million and $25 million.
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