How would each of the following items be reported on the balance sheet? a)Current Liability b)Current Liability c)Current or long-term liability (dependent on term of warranty) d)Current liability e)Current liability f)Current liability g)Current or noncurrent (dependent on time involved) h)Current liability i)Current liability j)Current liability k)Deduction from face value of note l)Disclose in footnote m)Current liabilities n)Current liability o)Disclose in footnote p)Separate presentation in current liability sectionE13-7 (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique had cash sales of $233,200 and credit sales of $153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.
June 30 Revenue from sales21,900 Sales Tax Payable21,900 *Computation: Sales plus sales tax (233,200 + 153,700) = 386,900 Sales exclusive of tax (386,900 / 1. 06) = 365,000 Sales tax (386,900 -365,000) = 21,900 E13-11 (Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2007 at $6,000 each.During 2007, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
Instructions (a) Prepare 2007 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. (b) Prepare 2007 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty contracts.Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years.
Estimate revenues earned on the basis of costs incurred and estimated costs. a) Cash3,000,000 Sales3,000,000 Warranty Expense20,000 Cash20,000 Warranty Expense100,000 Estimated liability under warranties100,000 b) Cash3,000,000 Sales2,850,000 Unearned Warranty revenue150,000 Warranty Expense20,000 Cash20,000 Unearned warranty revenue25,000 Warranty revenue25,000 E13-13 (Contingencies) Presented below are three independent situations.Answer the question at the end of each situation. 1.
During 2007, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa’s attorneys have indicated that they believe it is probable that Salt-n-Pepa will lose this dispute. They also believe that Salt-n-Pepa will have to pay the IRS between $900,000 and $1,400,000. After the 2007 financial statements were issued, the case was settled with the IRS for $1,200,000.
What amount, if any, should be reported as a liability for this contingency as of December 31, 2007? 2.On October 1, 2007, Alan Jackson Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Jackson’s management along with its counsel have concluded that it is probable that Jackson will be responsible for damages, and a reasonable estimate of these damages is $5,000,000. Jackson’s insurance policy of $9,000,000 has a deductible clause of $500,000. How should Alan Jackson Chemical report this information in its financial statements at December 31, 2007? 3.
Melissa Etheridge Inc. had a manufacturing plant in Bosnia, which was destroyed in the civil war.It is not certain who will compensate Etheridge for this destruction, but Etheridge has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be less than the fair value of the plant, but more than its book value. How should the contingency be reported in the financial statements of Etheridge Inc.
? 1. Salt-n-Pepa Inc. should report $900,000 as a liability as of December 31, 2007. 2.
Alan Jackson Chemical should accrue $500,000 because that is the amount the company is liable for, since the insurance will cover the rest. 3. Gain contingencies are not recorded.