Exam 7: Accounting for Liabilities

Rush Corporation borrowed $50,000 on January 1,2012.The loan is for a five-year period and has an annual interest rate of 8%.At the end of each year,Rush will make a payment of $12,522.82,which includes both principal and interest.With this loan,the amount of interest expense that Rush reports on its income statement will be the same for each year of the loan.

Under what circumstances is a contingent liability not reported on the balance sheet?

Borrowing by issuing a note payable is a/an

Osgood Company estimated that its warranty expense would be $2,125 for the current year.During the year,Osgood paid $950 to repair merchandise that was returned by customers. a)What type of transaction is the recording of warranty expense? b)If this is the first year of operations,what is the amount of warranty liability that will be shown on the balance sheet at the end of the year?

Accounts payable and notes payable are reported on the balance sheet at net realizable value.

On December 31,2012,Washta Company made the annual payment on a long-term note.The payment included a reduction in the principal balance and payment of interest for the year.Show how this annual payment affected Washta's financial statements.

Saba Company borrowed $10,000 from the bank by issuing a promissory note on June 1,2012.The note had a one-year term and a 6 percent annual interest rate.On December 31,2012,Saba accrued the interest on the note. Required: Show how the issuance of the note and accrual of interest affect the financial statements by using the horizontal model provided.Indicate the dollar amount of increases and decreases; enter NA if an item is not affected.In the cash flows column,designate cash flows as operating activities (OA),investing activities (IA.or financing activities (FA).

Rominger Company borrowed $10,000 from the bank by issuing a promissory note on June 1,2012.The note had a six-month term and a 6 percent annual interest rate.On November 30,2012,Rominger paid principal and interest on the note. Required: Show how the issuance of the note and payment of principal and interest at maturity affect the financial statements by using the horizontal model provided.Indicate the dollar amount of increases and decreases; enter NA if an item is not affected.In the cash flows column,designate cash flows as operating activities (OA),investing activities (IA.or financing activities (FA).

Juneau Company issued 5-year $200,000 face value bonds at 95 on January 1,2012.The stated interest rate on these bonds is 9%.If the effective interest rate is 10.33%,interest expense and the discount amortization in 2012 are

On January 1,2012,Jordan Co.issued $100,000 of bonds.Indicate the effects of issuing these bonds.

Which of the following answers correctly shows the effect of the issuance of the note on Halogen's financial statements?

The following is a list of balance sheet accounts (in random order)and balances for the Community Naval Supply Company.They have been updated as of December 31,2012. Required: Prepare a classified balance sheet for Community Naval Supply Company at December 31,2012.

Applegate Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on Knight's statements?

On January 1,2012,Luna Company issued bonds with a face value of $300,000 at 95.The bonds will mature in 5 years.Interest at 9% was payable in cash on December 31 of each year.The discount will be amortized using the straight line method.Based on this information,the amount of interest expense shown on the 2012 income statement and the cash flow from operating activities shown on the 2012 statement of cash flows would be:

In accounting for a contingent liability,if the likelihood of the obligation is probable and the amount can be estimated,a company must

Explain the reason that interest expense may decrease each year during the life of a long-term note payable.How is the amount of interest expense normally computed?

What is solvency? How could you measure solvency based on a company's financial statements?

Under what circumstances must a contingent liability be reported on a company's balance sheet?

Walden Company offers a six-month warranty on all the merchandise it sells.For 2012,total sales were $528,000.The company estimates that its warranty cost will be 2% of sales.During the year,the company paid $6,100 for repairs provided to customers. Required: Indicate how the company's financial statements would be affected by a)the sales during 2012 b)warranty expense c)payment for repairs Use the statements model,below.Show dollar amounts of increases and decreases; enter NA if an item is not affected.In the cash flows column,designate cash flows as operating activities (OA),investing activities (IA)or financing activities (FA).

Companies that offer warranties on their products record the warranty expense at the time they provide service to customers under the terms of the warranty.