Exam 10: Current Liabilities

Product warranties are promises made by the ________ to repair or replace the product if it is defective or does not perform as intended.

Milner Company is preparing adjusting entries at December 31. An analysis reveals the following: 1. During December, Milner Company sold 4,900 units of a product that carries a 60-day warranty. The sales for this product totalled $100,000. The company expects 6% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $15. 2. The company has been sued by a disgruntled employee. Legal counsel believes it is likely that the company will have to pay $200,000 in damages. 3. The company has been named as one of several defendants in a $400,000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages. Instructions Prepare adjusting entries, if required, for each of the three items.

Shediac Bay Marina had a customer loyalty program at its gas dock. For every litre of gasoline purchased, the customer would get a redemption award of $.015 which can be used to purchase products in the company's retail marine store. In July, the company sold 100,500 litres of gasoline. -The entry to record the liability for the July sales would a $______ credit to ________.

Examples of determinable current liabilities include all of the following EXCEPT

Shediac Bay Marina had a customer loyalty program at its gas dock. For every litre of gasoline purchased, the customer would get a redemption award of $.015 which can be used to purchase products in the company's retail marine store. In July, the company sold 100,500 litres of gasoline. -By the end of the August, customers redeemed 25,000 of the rewards. Shediac should make which of the following entries to record the redemption?

Under ASPE, a contingent liability is defined as a liability that is contingent on the occurrence or non-occurrence of some future event.

Under IFRS, the term used for an uncertain liability is

At its December 31, 2014 year end, Jamison Company recorded $200 interest payable on a $10,000, 3 month, 5% note payable. The company's financial statements will present notes payable of $10,200.

The current portion of long-term debt should

Kim Company sells 2,000 units of its product for $500 each in 2014. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $100 per unit. In 2014, warranty contracts are honoured on 40 units for a total cost of $4,000. -What amount will be reported on Kim Company's balance sheet as Estimated Warranty Liability on December 31, 2014?

Under ASPE, a contingent liability must be accrued in the financial statements if

Collateral is usually required by a bank as protection in case the company is unable to repay the bank.

An operating line of credit

On April 1, Hoadley Company borrows $90,000 from Northwest Provincial Bank by signing a 6-month, 6%, interest-bearing note. Hoadley's year end is August 31. Instructions Prepare the following entries associated with the note payable on the books of Hoadley Company: a. The entry on April 1 when the note was issued. b. Any adjusting entries necessary on May 31 in order to prepare the quarterly financial statements. Assume no other interest accrual entries have been made. c. The adjusting entry at August 31 to accrue interest. d. The entry to record payment of the note at maturity.

Under IFRS, a liability is recorded if the chance of occurrence is

A company has a negative (credit) balance in the Cash account at the end of the year. This amount can be called all of the following EXCEPT

Bank overdrafts will require a journal entry at the end of the year to record the amount.

Dejong's Drycleaning had the following events occur during December, 2014: Dejong is reporting under ASPE. 1. Dejong signed a $40,000 loan guarantee on behalf of Dejong Junior's. At December 31, Junior's had drawn $10,000 of loan advances. Junior's has sufficient assets to cover its liabilities. 2. Dejong was sued by an irate customer who said the trousers that Dejong had returned to him belonged to someone else. The customer is claiming $10,000,000 in damages for distress because he mistakenly wore the ill-fitting trousers to work and suffered discomfort and embarrassment as a result. Dejong's lawyer has advised them that the likelihood of this claim succeeding is nil, and has offered to defend them at no charge. The Dejongs have already paid the claimant $100 for replacement of the missing trousers. 3. Dejong was sued for wrongful dismissal by a former employee. The employee is claiming $2,000 in lost wages. Dejong's lawyer has advised them that the claim, if taken to trial, is likely to be upheld. 4. In early December, some drycleaning fluid spilled and damaged equipment valued at $5,600. Dejong replaced the equipment, which is insured, and expects their insurance policy will reimburse at least $5,000 of the cost and possibly the entire amount. However the exact amount covered by insurance has not yet been determined. Instructions For each of the four situations above, evaluate the likelihood and measurability of any losses that Dejong may face. Indicate if any liability should be recorded or disclosed in Dejong's December 31, 2014 financial statements.

With an interest-bearing note, the amount of assets received upon issue of the note is generally

During the year, Canada Ski Cross Ltd. instituted a customer rewards program. The company sells skis which are specially used for the latest type of skiing, ski cross. For every $250 of ski cross equipment purchased by a customer, the company will rebate $50 towards the cost of purchasing a ski cross helmet. In January, the company had ski cross equipment sales of $64,000. There were no helmets purchased. In February, there were sales of $32,600 and there were 135 helmets sold. Instructions a. Prepare journal entries for January. What is the ending balance in the liability account for the end of January? b. Prepare journal entries for February. What is the ending balance in the liability account for the end of February?