Exam 12: Financial Liabilities and Provisions

On January 1, 2012, a company purchased a machine that had a list price of $23,500.The purchase terms agreed upon were: cash down payment $12,000 plus a 15% note payable of $9,132 (its present value).The note is payable in three equal annual instalments (interest plus principal)on each December 31.Round to the nearest dollar. Required: (a)Give the entry to record the acquisition of the machine. (b)Give the adjusting entry required on September 30, 2014, for interest assuming this is the end of the accounting period.

For a small population, the best estimate for the amount of a provision that must be recognized is the expected value of the possible outcomes.

Information obtained prior to the issuance of the current period's financial statements of KG Company indicates that it is probable that, at the date of the financial statements, a liability will be incurred for obligations related to product warranties on products sold during the current period.During the past three years, product warranty costs have been approximately 1 1/2 percent of annual sales revenue.An estimated loss contingency should be:

Loan guarantees are only recorded if they are likely to be paid.

A firm sold $100,000 worth of goods during 2014.The firm extends warranty coverage on these goods.Historically, warranty costs have averaged 2% of total sales.During 2014, the firm incurred $1,000 to service goods sold in 2013 and $200 to service goods sold in 2014.What is warranty expense for 2014?

Warranties provisions may arise from legal or constructive obligations.

A short-term note payable may include all of the following except:

Contingent liabilities will or will not become actual liabilities depending on:

A company decides to relocate a group from a discontinued business segment to a division with ongoing operations.The expenses incurred in doing so would qualify as a restructuring charge.

On September 1, 2020, a company signed a $6,540, one-year, non-interest-bearing note payable and received $6,000 cash. (a)What was the imputed rate of interest? %. (b)Give the entry required at September 1, 2020, to record the receipt of the cash (record on net basis). (c)Give the adjusting entry required at the end of the accounting year, December 31, 2020. (d)Give the entry required on the due date, August 31, 2021, assuming no reversing entries were made.

Under IFRS, most financial liabilities are valued at Fair Value.

Under ASPE, contingent liabilities which are more likely than not, are accrued at the lowest end of the range.

You are an investor and have just purchased a bond on July 1 which pays interest every March 1 and September 1.When you receive your first interest cheque, you will receive and have earned how many months interest?

Under ASPE, only legal obligations are recognized.

Self-insurance costs for expected losses must never be provided for.

Executory contracts seldom require a journal entry, while onerous contracts do.

Constructive obligations may arise from:

Under IFRS, a loss contingency must be credited to a liability account only if the occurrence of the contingent event is probable and if the amount of loss can be reasonably estimated.