ACCT 2301 Chapter 9 SB - Homework assignment PDF

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A (LIABILITY) is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. A (SHORT-TERM) liability is a liability due to be paid or settled within one year or the company’s operating cycle, whichever is longer. A contingent liability can be ignored (not recorded in the financial statements or notes to the financial statements) if it is considered as (REMOTE) possibility. A known liability arises from a situation with little uncertainty, with set agreements, contracts, or laws. These liabilities are measurable. Known liabilities would include all of the following items, except: WARRANTIES A known obligation of an uncertain amount that can be reasonably estimated is called a(n) (ESTIMATED) liability. A liability created by buying goods or services on credit is typically recorded to (ACCOUNTS PAYABLE) A measurable obligation arising from agreements, contracts, or laws is called a (KNOWN) liability. A(n) __________ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated. ESTIMATED Ace company borrowed $10,000 from Fair Rates Bank by signing a two-year note payable. Ace’s operating cycle is 14 months. This note would be considered a ___________ on the balance sheet. LONG TERM LIABILITY Amounts received in advance from customers for future products or services are typically recorded in a liability accounts called UNEARNED REVENUES Bina consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months. The $500 would be recorded with a debit to Cash and a credit to Unearned Revenues, which is a (LIABILITY) account. Boyd’s Bicycle Sales and Repairs Co. offers a 6-month warranty on all new bicycle purchases. Based on history, Boyd determines that warranty repairs are equal to approximately 2% of sales. During the month, Boyd sales total $20,000. Boyd will record Warranty Expense in the amount of ________ for the month. $400 During December 2017, Marci Lane opens a computer sales store selling new computers and offering a six-month warranty on all new sales. During December, Lane makes three sales totaling $4,000. Lane estimates warranty repairs will total 15% of sales. In January 2018, a customer submits a warranty claim requiring $300 of work. Lane will record a debit to Estimated Warranty Liability in the amount of ($300) in January 2018 for the warranty work. Handy Holly Co. provides a variety of household repairs and warranties her work for a six month period. Holly provided $13,000 of service fees during the month and anticipates that warranty repairs for these sales will total $400. The entry that Holly will make to record the estimated warranty expense will include a credit to which account? ESTIMATED WARRANTY LIABILITY

In order for a contingent liability to be recorded as a journal entry in the financial statements, it must be (PROBABLE) and reasonable estimable. Keys Co. is located in Florida. An evacuation has been ordered due to Hurricane Edward, which is headed in the direction of Keys. Keys should record a contingent liability prior to the evacuation. FALSE Obligations due after one year or one operating cycle, whichever is longer, are considered to be: LONGTERM LIABILITIES Perez Co. Sells automotive supplies and warranties them for a three-month period. Perez sold $10,000 of supplies during the month and anticipates that warranty repairs for these sales will total $250. The adjusting entry that Perez will make to record the warranty expense will include which of the following? DEBIT TO WARRANTY EXPENSE; CREDIT TO ESTIMATED WARRANTY LIABILITY Pyott Co. sells small appliances and offers warranties on all new sales. During the month of December, Pyott’s sales were $30,000 and accrued related warranties totals $300. During January, a customer made a repair claim under the warranty requiring $200 of labor. The journal entry related to the January repair would include a debit to the __________ account in the amount of __________. ESTIMATED WARRANTY LIABILITY $200 Spot Co. purchases office supplies from Sally Supplies, Inc. Spot does not pay cash for the purchase, and now owes the amount to Sally. This transaction would typically be recorded in which account in Spot’s books? ACCOUNTS PAYABLE Trighton’s Trailer Co. sells all kinds of trailers and provides a one-year warranty on all new trailer sales. Based on history, Trighton anticipates that 2% of trailers will be returned and will have a warranty cost of $100 per trailer. During the month, Victor sold 300 trailers for a total of $255,000. At the end of the month, Trighton will record ($600) in warranty expense. Victor’s Vacuum Sales Co. sells high quality vacuums and provides a one-year warranty on all new sales. Based on history, Victor anticipates that 3% of vacuums will be returned at a cost of $30 per vacuum. During the month, Victor sold 100 vacuums for a total of $35,000. At the end of the month, Victor will record __________ in Warranty Expense. $90 When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset accounts and a(n) ___________ accounts. LIABILITY Which of the following items would be considered a current liability? WAGES PAYABLE; ACCOUNTS PAYABLE, TERMS N/30; NOTES PAYABLE, DUE IN 3 MONTHS Which of the following represent reasonably possible contingent liabilities? DEBT GUARANTEES; POTENTIAL LEGAL CLAIMS Which of the following situations is not a contingent liability? FUTURE NATURAL DISASTER Which of the following situations is not a contingent liability? FUTURE NATURAL DISASTER Which of the following situations would require a journal entry to record the contingent liability in the financial statement? THE LIABILITY IS PROBABLE AND ESTIMATED TO BE $10,000...