90. Greeson Corp.

signed a three-month, zero-interest-bearing note on November 1, 2017 for the purchase of $500,000 of
inventory. The face value of the note was $507,800. Assuming Greeson used a “Discount on Note Payable” account to initially
record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December
31, 2017 will include a
a. debit to Discount on Note Payable for $2,600.
b. debit to Interest Expense for $5,200.
c. credit to Discount on Note Payable for $2,600.
d. credit to Interest Expense for $5,200.
b $507,800 – $500,000 = $7,800. $7,800 × 2/3 = $5,200.
91. The effective interest on a 12-month, zero-interest-bearing note payable of $400,000, discounted at the bank at 7% is a.
6.54%.
b. 7%.
c. 14.29%.
d. 7.53%.
d $28,000 ÷ ($400,000 – $28,000) = 0.0753 = 7.53%.

92. On September 1, Horton purchased $39,900 of inventory items on credit with the terms 1/15, net 30, FOB destination.
Freight charges were $840. Payment for the purchase was made on September 18. Assuming Horton uses the perpetual
inventory system and the net method of accounting for purchase discounts, what amount is recorded as inventory from this
purchase? a. $39,501.
b. $40,341.
c. $40,740.
d. $39,900.
a ($39,900 × .99) = $39,501.

93. Slack Inc. borrowed $400,000 on April 1. The note requires interest at 12% and principal
to be paid in one year. How much interest is recognized for the period from April 1 to December 31?
a. $0.
b. $48,000.
c. $32,000.
d. $36,000.
d $400,000 × .12 × 9/12 = $36,000.

94. Craig borrowed $700,000 on October 1, 2017 and is required to pay $720,000 on March 1, 2018. What amount is the
note payable recorded at on October 1, 2017 and how much interest is recognized from October 1 to December 31, 2017? a.
$700,000 and $0.
b. $700,000 and $12,000.
c. $720,000 and $0.
d. $700,000 and $20,000.
b ($720,000 – $700,000) × 3/5 = $12,000.

95. Parton owes $3 million that is due on February 28. The company borrows $2,400,000 on February 25 (5-year note)
and uses the proceeds to pay down the $3 million note and uses other cash to pay the balance. How much of the $3 million
note is classified as long-term in the December 31 financial statements? a. $3,000,000.
b. $0.
c. $2,400,000.
d. $600,000.
c $2,400,000.

96. Venible newspapers sold 6,000 of annual subscriptions at $150 each on June 1. How much unearned revenue will
exist as of December 31? a. $0.
 b. $375,000.
c. $450,000.
d. $900,000.
b (6,000 × $150) × 5/12 = $375,000.

97. Bargain Surplus made cash sales during the month of October of $375,000. The sales are subject to a 6% sales tax that
was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions? a.
Debit Accounts Receivable for $375,000.
b. Credit Sales Taxes Payable for $21,226.
c. Credit Sales Revenue for $347,483.
d. Credit Sales Taxes Payable for $22,500.
d $375,000 × .06 = $22,500.

98. On February 10, 2018, after issuance of its financial statements for 2017, Higgins Company entered into a financing agreement
with Cleveland Bank, allowing Higgins Company to borrow up to $8,000,000 at any time through 2020. Amounts borrowed under the
agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Higgins Company
presently has $3,000,000 of notes payable with Star National Bank maturing March 15, 2018. The company intends to borrow
$5,000,000 under the agreement with Cleveland and liquidate the notes payable to Star National Bank. The agreement with Cleveland
also requires Higgins to maintain a working capital level of $12,000,000 and prohibits the payment of dividends on common stock
without prior approval by Cleveland Bank. From the above information only, the total short-term debt of Higgins Company as of the
December 31, 2017 balance sheet date is

a. $0.
b. $3,000,000.
c. $4,000,000.
d. $8,000,000.

b $3,000,000.

99. On December 31, 2017, Isle Co. has $6,000,000 of short-term notes payable due on February 14, 2018. On January 10,
2016, Isle arranged a line of credit with Beach Bank which allows Isle to borrow up to $4,500,000 at one percent above the prime
rate for three years. On February 2, 2018, Isle borrowed $3,600,000 from Beach Bank and used $1,500,000 additional cash to
liquidate $5,100,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as
current liabilities on the December 31, 2017 balance sheet which is issued on March 5, 2018 is a. $0.
b. $900,000.
c. $1,500,000.
d. $2,400,000.
d $6,000,000 – $3,600,000 = $2,400,000.

Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner
Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was
$754,350.

100. The amount of sales taxes (to the nearest dollar) for May is a. $62,286.
b. $49,350.
c. $67,893.
d. $52,806.
b S + .07S = $754,350, ∴ S = $705,000. $754,350 – $705,000 = $49,350.

Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner
Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was
$754,350.
101. The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is a. $37,719.
b. $48,363.
c. $62,286.
 d. $51,750.
b $49,350 × .98 = $48,363.
102. Valley, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax
collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the
state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2017
Valley remitted $203,700 tax to the state tax division for March 2017 retail sales. What was Valley's March 2017 retail sales
subject to sales tax? a. $4,074,000.
b. $3,990,000.
c. $4,200,000.

.05S × .97 = $203,700, ∴ S = $4,200,000.

d. $4,112,500.
c
103. Jump Corporation has $3,000,000 of short-term debt it expects to retire with proceeds from the sale of 85,000 shares of
common stock. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is
issued, what amount of short-term debt could be excluded from current liabilities? a. $2,125,000
b. $3,000,000
c. $875,000
d. $0

103. a 85,000 × $25 = $2,125,000.

104. Elmer Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of
common stock. If the stock is sold for $30 per share subsequent to the balance sheet date, but before the balance sheet is
issued, what amount of short-term debt could be excluded from current liabilities? a. $1,500,000
b. $2,500,000
c. $1000,000
d. $0
a 50,000 × $30 = $1,500,000.

105. Palco Co., which has a taxable payroll of $1,200,000, is subject to FUTA tax of 6.2% and a state contribution rate of
5.4%. However, because of stable employment experience, the company’s state rate has been reduced to 2%. What is the
total amount of federal and state unemployment tax for Palco Co.? a. $139,200
b. $98,400
c. $48,000
d. $33,600
d [(.062 – .054) + .02] × $1,200,000 = $33,600.

106. Roxy Co., which has a taxable payroll of $800,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However,
because of stable employment experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and
state unemployment tax for Roxy Co.?

a. $93,600
b. $65,600
c. $32,000
d. $22,400

d [(.062 – .054) + .02] × $800,000 = $22,400

107. A company gives each of its 75 employees (assume they were all employed continuously through 2017 and 2018) 12
days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting
January 1 of the next year. The employees work 8 hours per day. In 2017, they made $21 per hour and in 2018 they made
$24 per hour. During 2018, they took an average of 9 days of vacation each. The company’s policy is to record the liability
existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2017
and 2018 balance sheets, respectively?

a. $151,200; $210,600
b. $172,800; $216,000
c. $151,200; $216,000
d. $172,800; $210,600

c 75 × 12 × 8 × $21 = $151,200; 75 × 15 × 8 × $24 = $216,000

 108. A company gives each of its 75 employees (assume they were all employed continuously through 2017 and 2018) 12
days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting
January 1 of the next year. The employees work 8 hours per day. In 2017, they made $24.50 per hour and in 2018 they made
$28 per hour. During 2018, they took an average of 9 days of vacation each. The company’s policy is to record the liability
existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2017
and 2018 balance sheets, respectively? a. $176,400; $245,700
b. $201,600; $252,000
c. $176,400; $252,000
d. $201,600; $245,700
c 75 × 12 × 8 × $24.50 = $176,400; 75 × 15 × 8 × $28 = $252,000.

109. The total payroll of Trolley Company for the month of October, 2017 was $960,000, of which $180,000 represented
amounts paid in excess of $118,500 to certain employees. $600,000 represented amounts paid to employees in excess of the
$7,000 maximum subject to unemployment taxes. $180,000 of federal income taxes and $18,000 of union dues were withheld.
The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an
employee’s wages to $118,500 and 1.45% in excess of $118,500. What amount should Trolley record as payroll tax expense?
a. $87,360.
b. $79,560.
c. $68,760.
d. $73,440.
c ($780,000 × 7.65%) + ($180,000 × 1.45%) + ($360,000 × 1.8%) = $68,760.

Vanco Company has 70 employees who work 8-hour days and are paid hourly. On January 1, 2017, the company began a program of
granting its employees 10 days of paid vacation each year. Vacation days earned in 2017 may first be taken on January 1, 2018.
Information relative to these employees is as follows:
HourlyVacation Days EarnedVacation Days Used
Year Wagesby Each Employee by Each Employee
2017 $20.50 10 0 2018 22.50 10 8 2019 25.50 10 10

Vanco has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is
earned.

110. What is the amount of expense relative to compensated absences that should be reported on Vanco’s income statement
for 2017? a. $0.
b. $142,800.
c. $126,000.
d. $114,800.
d $20.50 × 8 × 10 × 70 = $114,800.
Vanco Company has 70 employees who work 8-hour days and are paid hourly. On January 1, 2017, the company began a program of
granting its employees 10 days of paid vacation each year. Vacation days earned in 2017 may first be taken on January 1, 2018.
Information relative to these employees is as follows:
HourlyVacation Days EarnedVacation Days Used
Year Wagesby Each Employee by Each Employee
2017 $20.50 10 0 2018 22.50 10 8 2019 25.50 10 10
Vanco has chosen to accrue the liability for compensated absences at
the current rates of pay in effect when the compensated time is earned.

111. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2019? a.
$168,000.
b. $394,800.
c. $142,800.
d. $193,200.
a ($25.50 × 8 × 10 × 70) + ($22.50 × 8 × 2 × 70) = $168,000.

112. Qualpoint pays a weekly payroll of $255,000 that includes federal taxes withheld of $38,100, FICA taxes withheld of
$23,670, and 401(k) withholdings of $27,000. What is the effect of assets and liabilities from this transaction?

a. Assets decrease $255,000 and liabilities do not change.

b. Assets decrease $193,230 and liabilities increase $61,770.
 c. Assets decrease $193,230 and liabilities decrease $61,770.
d. Assets decrease $166,230 and liabilities increase $88,770.
d $38,100 + $23,670 + $27,000 = $88,770; $255,000 – $88,770 = $166,230.
113. Qualpoint provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have
earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is
$960, what is the required journal entry?
a. Debit Salaries and Wages Expense for $124,800 and credit Salaries and Wages Payable for $124,800.
b. No journal entry required.
c. Debit Salaries and Wages Payable for $124,295 and credit Salaries and Wages Expense for $124,295.
d. Debit Salaries and Wages Expense for $62,400 and credit Salaries and Wages Payable for $62,400.

a 65 × 2 weeks × $960/week = $124,800.

114. Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has
consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated
that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment
would be $800,000. What is the required journal entry as a result of this litigation?
a. Debit Litigation Expense for $800,000 and credit Litigation liability for $800,000.
b. No journal entry is required.
c. Debit Litigation Expense for $320,000 and credit Litigation Liability for $320,000.
d. Debit Litigation Expense for $480,000 and credit Litigation Liability for $480,000.

b Likelihood of loss is only possible, not probable.

115. Xtra Processes is involved with innovative approaches to finding energy reserves. Xtra recently built a facility to
extract natural gas at a cost of $12 million. However, Xtra is also legally responsible to remove the facility at the end
of its useful life of twenty years. This cost is estimated to be $17 million (the present value of which is $6.5 million).
What is the journal entry required to record the asset retirement obligation?

a. No journal entry required.

b. Debit Natural Gas Facility for $17,000,000 and credit Asset Retirement Obligation for
$17,000,000
c. Debit Natural Gas Facility for $5,000,000 and credit Asset Retirement Obligation for $5,000,000.
d. Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000.
d Present value of the removal cost.
116. Composite provides extended service contracts on electronic equipment sold through major retailers. The standard
contract is for four years. During the current year, Composite provided 42,000 such warranty contracts at an average
price of $162 each. Related to these contracts, the company spent $800,000 servicing the contracts during the
current year and expects to spend $4,200,000 more in the future. What is the net profit that the company will
recognize in the current year related to these contracts?
a. $1,804.
b. $6,004,000.
c. $800,000.
d. $901,000.

d [(42,000 × $162) ÷ 4 yrs.] – $800,000 = $901,000.

117. Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all
products sold. The company estimates that the warranty cost is $300 per unit sold and reported a liability for
estimated warranty costs $10.4 million at the beginning of this year. If during the current year, the company sold
60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what
amount of liability would the company report on its balance sheet at the end of the current year?
a. $3,733,333.
b. $6,000,000.
c. $16,400,000.
d. $18,000,000.
c $10,400,000 + (60,000 × $300) – $12,000,000 = $16,400,000.
 118. A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2018. Historically, 10% of
customers mail in the rebate form. During 2018, 3,750,000 packages of light bulbs are sold, and 200,000 $1 rebates
are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2018 financial
statements dated December 31? a. $375,000; $375,000
b. $375,000; $175,000
c. $175,000; $175,000
d. $200,000; $175,000

b 3,750,000 × .10 × $1 = $375,000; $375,000 – $200,000 = $175,000.

119. A company buys an oil rig for $3,000,000 on January 1, 2018. The life of the rig is 10 years and the expected cost to
dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate
interest rate for this company.
What expense should be recorded for 2018 as a result of these events? a. Depreciation expense of
$360,000
b. Depreciation expense of $300,000 and interest expense of $23,133
c. Depreciation expense of $300,000 and interest expense of $60,000
d. Depreciation expense of $323,133 and interest expense of $23,133
d ($3,000,000 + $231,330) ÷ 10 = $323,133; $231,330 × .10 = $23,133.

120. Sawyer Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the
property, it would cost them $2,000,000 per year. The company estimates that on average it will incur losses of
$1,600,000 per year. During 2018, $700,000 worth of losses were sustained. How much total expense and/or loss
should be recognized by Sawyer Company for 2018? a. $700,000 in losses and no insurance expense
b. $700,000 in losses and $675,000 in insurance expense
c. $0 in losses and $1,600,000 in insurance expense
d. $0 in losses and $2,000,000 in insurance expense
a $700,000 losses and no insurance expense
121. A company offers a cash rebate of $2 on each $6 package of batteries sold during 2018. Historically, 10% of
customers mail in the rebate form. During 2018, 5,000,000 packages of batteries are sold, and 175,000 $2 rebates
are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2018 financial
statements dated December 31?
a. $1,000,000; $1,000,000
b. $1,000,000; $650,000
c. $650,000; $650,000
d. $350,000; $650,000
b 5,000,000 × .10 × $2 = $1,000,000; $1,000,000 – $350,000 = $650,000.

122. A company buys an oil rig for $5,000,000 on January 1, 2018. The life of the rig is
10 years and the expected cost to dismantle the rig at the end of 10 years is $1,000,000 (present value at 10% is $385,550). 10% is
an appropriate interest rate for this company.
What expense should be recorded for 2018 as a result of these events? a. Depreciation expense of
$600,000
b. Depreciation expense of $500,000 and interest expense of $38,555
c. Depreciation expense of $500,000 and interest expense of $100,000
d. Depreciation expense of $538,555 and interest expense of $38,555
d ($5,000,000 + $385,550) ÷ 10 = $538,555; $385,550 × .10 = $38,555.

123. During 2016, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s
defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year
after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period
were as follows: (assume the accrual method)
Sales Actual Warranty Expenditures
2016 $ 1,600,000$ 39,000
2017 2,500,000 65,000
2018 2,100,000 135,000
$6,200,000 $239,000
What amount should Rao report as a liability at December 31, 2018?
a. $0
b. $71,000
c. $84,000
d. $319,000
 d ($6,200,000 × .09) – $239,000 = $319,000.

124. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted
Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2018, the company sold
1,350,000 boxes of Frosted Flakes and customers redeemed 660,000 boxtops receiving 220,000 bowls. If the bowls cost
Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2018? a. $540,000
b. $100,000
c. $150,000
d. $276,000
b {[(1,350,000 × .60) – 660,000] ÷ 3} × $2 = $100,000.

125. During 2016, Salton Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s
defects. Based on industry experience, warranty costs are estimated at 1% of sales in the year of sale, 2% in the year after
sale, and 3% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as
follows:
Sales Actual Warranty Expenditures
2016 $ 1,400,000$ 26,000
2017 1,000,000 40,000
2018 1,400,000 90,000
$3,800,000 $156,000
What amount should Salton report as a liability at December 31, 2018?
a. $0
b. $14,000
c. $34,000
d. $72,000
d ($3,800,000 × .06) – $156,000 = $72,000
126. Crispy Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from Crispy Frosted
Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2018, the company sold 800,000
boxes of Frosted Flakes and customers redeemed 352,000 boxtops receiving 88,000 bowls. If the bowls cost Crispy Company
$3 each, how much liability for outstanding premiums should be recorded at the end of 2018? a. $240,000
b. $64,000
c. $96,000
d. $134,400
b {[(800,000 × .60) – 352,000] ÷ 4} × $2 = $64,000.

Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes
cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2017 and 2018 are as follows:
2017 2018

Bags of dog food sold 500,000 600,000

Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000

127. The premium expense for 2017 is a. $250,000.

b. $60,000.
c. $100,000.
d. $112,500.
d [(500,000 × .45) ÷ 8] × $4 = $112,500.
Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes
cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2017 and 2018 are as follows:
2017 2018

Bags of dog food sold 500,000 600,000

Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000

128. The premium liability at December 31, 2017 is a. $50,000.

b. $72,000.
c. $60,000.
d. $52,500.
d [(225,000 – 120,000) ÷ 8] × $4 = $52,500.

Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes
cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2017 and 2018 are as follows:
2017 2018

Bags of dog food sold 500,000 600,000

Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000

129. The premium liability at December 31, 2018 is a. $30,000.

b. $52,500.
c. $60,000.
d. $112,500.
d {[(600,000 × .45) – 150,000] ÷ 8} × $4 = $60,000. $60,000 + $52,500 = $112,500.

130. Wooten Co. is being sued for illness caused to local residents as a result of negligence on the company's part in
permitting the local residents to be exposed to highly toxic chemicals from its plant. Wooten's lawyer states that it is probable
that Wooten will lose the suit and be found liable for a judgment costing Wooten anywhere from $1,800,000 to $9,000,000.
However, the lawyer states that the most probable cost is
$5,400,000. As a result of the above facts, Wooten should accrue
a. a loss contingency of $1,800,000 and disclose an additional contingency of up to $7,200,000.
b. a loss contingency of $5,400,000 and disclose an additional contingency of up to $3,600,000.
c. a loss contingency of $5,400,000 but not disclose any additional contingency.
d. no loss contingency but disclose a contingency of $1,800,000 to $9,000,000.

b $5,400,000 and $3,600,000.

131. Holland Company estimates its annual warranty expense as 3% of annual net sales. The following data relate to the
calendar year 2018:

Net sales $1,500,000

Warranty liability account
Balance, Dec. 31, 2018 $10,000 debit before adjustment
Balance, Dec. 31, 2018 20,000 credit after adjustment
Which one of the following entries was made to record the 2018 estimated warranty expense?
a. Warranty Expense 45,000

Retained Earnings (prior-period adjustment) 7,500

Warranty Liability 37,500

b. Warranty Expense 25,000

Retained Earnings (prior-period adjustment) 5,000

Warranty Liability 45,000

c. Warranty Expense 30,000

Warranty Liability 30,000

d. Warranty Expense 45,000

Warranty Liability 45,000

d $1,500,000 × .03 = $45,000.

132. In 2017, Pollard Corporation began selling a new line of products that carry a two-year warranty against defects.
Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:
First year of warranty 3%
Second year of warranty 5%
Sales and actual warranty expenditures for 2017 and 2018 are presented below:
2017 2018
Sales $750,000 $1,050,000

Actual warranty expenditures 45,000 75,000

What is the estimated warranty liability at the end of 2018?(assume the accrual method)
a. $24,000.
b. $96,000.
c. $144,000.
d. $30,000.

a [($750,000 + $1,050,000) × .08] – $120,000 = $24,000.

133. On January 3, 2018, Benton Corp. owned a machine that had cost $400,000. The accumulated depreciation was
$240,000, estimated salvage value was $24,000, and fair value was $640,000. On January 4, 2018, this machine was
irreparably damaged by Pogo Corp. and became worthless. In October 2018, a court awarded damages of $480,000 against
Pogo in favor of Benton. At December 31, 2018, the final outcome of this case was awaiting appeal and was, therefore,
uncertain. However, in the opinion of Benton’s attorney, Pogo’s appeal will be denied. At December 31, 2018, what amount
should Benton accrue for this gain contingency? a. $640,000.
b. $520,000.
c. $400,000.
d. $0.
d $0, gain contingencies are not accrued.

134. Flavor Food Company distributes to consumers coupons which may be presented
(on or before a stated expiration date) to grocers for discounts on certain products of Flavor. The grocers are reimbursed when
they send the coupons to Flavor. In Flavor's experience, 50% of such coupons are redeemed, and generally one month
elapses between the date a grocer receives a coupon from a consumer and the date Flavor receives it. During 2018 Flavor
issued two separate series of coupons as follows:
Consumer Amount Disbursed
Issued On Total ValueExpiration Date as of 12/31/18
1/1/18 $500,000 6/30/18 $236,000 7/1/18 840,000 12/31/18 350,000
The only journal entry recorded to date is: debit to coupon expense and credit to cash of $815,000. The December 31,
2018 balance sheet should include a liability for unredeemed coupons of: a. $0.
b. $70,000.
c. $184,000.
d. $420,000.
b ($840,000 × .5) – $350,000 = $70,000.

135. Presented below is information available for Marley Company.

Current Assets

Cash $ 4,000
Short-term investments 55,000
Accounts receivable 61,000
Inventory 110,000
Prepaid expenses 30,000
Total current assets $260,000
Total current liabilities are $100,000. The acid-test ratio for Marley is: a. 2.60 to 1
b. 2.30 to 1
c. 1.20 to 1
d. 0.59 to 1
c————————————— = 1.20 to 1.
$100,000
 136. Which of the following is generally associated with payables classified as accounts payable?
Periodic Payment Secured
of Interest by Collateral
a. No No
b. No Yes
c. Yes No
d. Yes Yes

a Conceptual—accounts payable generally are zero-interest-bearing and unsecured.

137. On January 1, 2018, Bacon Co. leased a building to Horner Corp. for a ten-year term at an annual rental of $175,000.
At inception of the lease, Bacon received $700,000 covering the first two years' rent of $350,000 and a security deposit of
$350,000. This deposit will not be returned to Horner upon expiration of the lease but will be applied to payment of rent for the
last two years of the lease. What portion of the $700,000 should be shown as a current and long-term liability, respectively, in
Bacon's December 31, 2018 balance sheet?
Current Liability Long-term Liability
a. $0 $700,000
b. $175,000 $350,000
c. $350,000 $350,000
d. $350,000 $175,000

b $175,000 and $350,000.

138. On September 1, 2017, Halley Co. issued a note payable to Fidelity Bank in the amount of $2,700,000, bearing
interest at 10%, and payable in three equal annual principal payments of $900,000. On this date, the bank's prime rate was
11%. The first payment for interest and principal was made on September 1, 2018. At December 31, 2018, Halley should
record accrued interest payable of a. $99,000.
b. $90,000.
c. $60,000.
d. $198,000.

c $1,800,000 × .10 × = $60,000.

139. Included in Vernon Corp.'s liability account balances at December 31, 2017, were the following:
7% note payable issued October 1, 2017, maturing September 30, 2018 $375,000
8% note payable issued April 1, 2017, payable in six equal annual
installments of $225,000 beginning April 1, 2018 900,000
Vernon's December 31, 2017 financial statements were issued on March 31, 2018. On January 15, 2018, the entire $900,000 balance
of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2018,
Vernon consummated a noncancelable agreement with the lender to refinance the 7%, $375,000 note on a long-term basis,
on readily determinable terms that have not yet been implemented. On the December 31, 2017 balance sheet, the amount of
the notes payable that Vernon should classify as short-term obligations is a. $262,500.
b. $187,500.
c. $75,000.
d. $0.
d Conceptual—both notes have been refinanced by long-term obligations.

140. Ebbert Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by
payroll deductions. Information relating to salaries for the calendar year 2018 is as follows:
12/31/17 12/31/18

Employee advances $24,000 $ 36,000

Accrued salaries payable 160,000 ?
Salaries expense during the year 1,400,000

Salaries paid during the year (gross) 1,250,000

At December 31, 2018, what amount should Ebbert report for accrued salaries payable?
a. $310,000.
 b. $182,000.
c. $134,000.
d. $170,000.
a $1,400,000 + $160,000 – $1,250,000 = $310,000.

141. Roasten Corp.'s payroll for the pay period ended October 31, 2018 is summarized as follows:
Federal Amount of Wages Subject

Department Total Income Tax to Payroll Taxes

Payroll Wages Withheld [Link]
Factory $ 75,000 $ 9,000 $70,000 $32,000
Sales 22,000 3,000 16,000 2,000
Office 18,000 2,000 8,000 —
$115,000 $14,000 $94,000 $34,000
Assume the following payroll tax rates:
F.I.C.A. for employer and employee 8% each
Unemployment 3%
What amount should Roasten accrue as its share of payroll taxes in its October 31, 2018 balance sheet? a. $22,540.
b. $15,020.
c. $10,220.
d. $8,540.
d ($94,000 × .08) + ($34,000 × .03) = $8,540.

142. Yurman Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-
year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had
a balance of $960,000 at December 31, 2016 before year-end adjustment. Service contract costs are charged as incurred to
the service contract expense account, which had a balance of $240,000 at December 31, 2016. Outstanding service contracts
at December 31, 2016 expire as follows:
During 2017 During 2018 During 2019
$200,000 $320,000 $140,000
What amount should be reported as unearned service contract revenues in Yurman's December 31, 2016 balance sheet?
a. $720,000.
b. $660,000.
c. $480,000.
d. $440,000.
b $200,000 + $320,000 + $140,000 = $660,000.

143. Core Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps
are sold to licensees. Core's past experience indicates that only 75% of the stamps sold to licensees will be redeemed. Core's
liability for stamp redemptions was $7,500,000 at December 31, 2017. Additional information for 2018 is as follows:
Stamp service revenue from stamps sold to licensees $6,000,000
Cost of redemptions 4,980,000
If all the stamps sold in 2018 were presented for redemption in 2019, the redemption cost would be $4,500,000. What
amount should Core report as a liability for stamp redemptions at December 31, 2018? a. $12,480,000.
b. $8,520,000.
c. $5,895,000.
d. $7,020,000.
c ($4,500,000 × .75) + $7,500,000 – $4,980,000 = $5,895,000.
144. Neer Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within
the range is a better estimate than any other amount. The loss accrual should be a. zero.
b. the maximum of the range.
c. the mean of the range.
d. the minimum of the range.
d Conceptual.

145. During 2017, Eaton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty
costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and
actual warranty expenditures for the years ended December 31, 2017 and 2018 are as follows:
Actual Warranty
 Sales Expenditures
2017 $ 800,000 $12,000
2018 1,000,000 35,000 $1,800,000 $47,000
At December 31, 2018, (assuming the accrual method) Eaton should report an estimated warranty liability of a. $0.
b. $25,000.
c. $35,000.
d. $61,000.
d ($1,800,000 × .06) – $47,000 = $61,000.

146. In March 2018, an explosion occurred at Kirk Co.'s plant, causing damage to area properties. By May 2018, no
claims had yet been asserted against Kirk. However, Kirk's management and legal counsel concluded that it was reasonably
possible that Kirk would be held responsible for negligence, and that $5,000,000 would be a reasonable estimate of the
damages. Kirk's $6,000,000 comprehensive public liability policy contains a $500,000 deductible clause. In Kirk's December
31, 2017 financial statements, for which the auditor's fieldwork was completed in April 2018, how should this casualty be
reported? a. As a note disclosing a possible liability of $5,000,000.
b. As an accrued liability of $500,000.
c. As a note disclosing a possible liability of $500,000.
d. No note disclosure of accrual is required for 2017 because the event occurred in 2018.
c Conceptual.

BE. 13-147—Notes payable.

On August 31, Latty Co. partially refunded $900,000 of its outstanding 10% note payable made one year ago to Dugan State Bank by
paying $900,000 plus $90,000 interest, having obtained the $990,000 by using $262,000 cash and signing a new one-year $800,000
note discounted at 9% by the bank.

Instructions
(1) Make the entry to record the partial refunding. Assume Latty Co. makes reversing entries when appropriate.
(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.
Ans: NA., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 8, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Reporting, IFRS: None

Solution 13-147
(1) Notes Payable 900,000

Interest Expense 90,000

Discount on Notes Payable (9% × $800,000) 72,000

Notes Payable 800,000

Cash 262,000

(2) Interest Expense (1/3 × $72,000) 24,000

Discount on Notes Payable 24,000

BE. 13-148—Payroll entries.

Total payroll of Walnut Co. was $2,760,000, of which $480,000 represented amounts paid in excess of $118,500 to certain employees.
The amount paid to employees in excess of $7,000 was $2,160,000. Income taxes withheld were $675,000. The state unemployment
tax is 1.2%, the federal unemployment tax is .8%, and the F.I.C.A. tax is 7.65% on an employee’s salaries and wages to $118,500 and
1.45% in excess of $118,500.

Instructions
(a) Prepare the journal entry for the salaries and wages paid.
(b) Prepare the entry to record the employer payroll taxes.
Ans: NA., LO: 1, Bloom: AP, Difficulty: Moderate, Min: 8, AACSB: Analytic, AICPA BB:
None, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Reporting, IFRS: None
Solution 13-148

(a) Salaries and Wages Expense 2,760,000 Withholding Taxes Payable 675,000
FICA Taxes Payable 181,380*
Cash 1,903,620
* [($2,760,000 – $480,000) × 7.65%] + ($480,000 × 1.45%)

(b) Payroll Tax Expense 193,380

FICA Taxes Payable
($2,280,000 × 7.65%) + ($480,000 × 1.45%) 181,380
FUTA Taxes Payable
[($2,760,000 – $2,160,000) × .8%] 4,800
SUTA Taxes Payable ($600,000 × 1.2%) 7,200

EXERCISES
Ex. 13-149—Compensated absences.
Snow Co. began operations on January 2, 2017. It employs 15 people who work 8-hour days. Each employee earns 10 paid vacation
days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average
hourly wage rate was $24.00 in 2017 and $25.50 in 2018. The average vacation days used by each employee in 2018 was 9. Snow
Co. accrues the cost of compensated absences at rates of pay in effect when earned.

Instructions
Prepare journal entries to record the transactions related to paid vacation days during 2017 and 2018.

Ans: NA., LO: 1, Bloom: AP, Difficulty: Difficult, Min: 8, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA:
Reporting, IFRS: None
Solution 13-149

2017 Salaries and Wages Expense 28,800 (1) Salaries and Wages Payable 28,800

(1) 15 × 8 × $24.00 = $2,880; $2,880 × 10 = $28,800.

2018 Salaries and Wages Expense 1,620 Salaries and Wages Payable 25,920 (2)
Cash 27,540 (3)

Salaries and Wages Expense 30,600 (4)

Salaries and Wages Payable 30,600

(1) $2,880 × 9 = $25,920.

(2) 15 × 8 × $25.50 = $3,060; $3,060× 9 = $27,540.
(3) $3,060 × 10 = $30,600.
Ex. 13-150—Contingent liabilities.
Below are three independent situations.

1. In August, 2018 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued
Barkley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the
settlement would cost the company from $250,000 to $500,000.

2. A suit for breach of contract seeking damages of $3,000,000 was filed by an author against Henderson Co. on October 4, 2018.
Henderson's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is
between $1,000,000 and $2,250,000. No amount within this range is a better estimate of potential damages than any other
amount.

3. Kroft is involved in a pending court case. Kroft’s lawyers believe it is probable that Kroft will be awarded damages of $1,000,000.
Instructions
Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

Ans: NA., LO: 3, Bloom: C, Difficulty: Difficult, Min: 15, AACSB: Analytic, AICPA
BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting, IFRS: None
Solution 13-150

1. Barkley Co. should disclose in the notes to the financial statements the existence of a possible contingent liability related to the
law suit. The note should indicate the range of the possible loss. The contingent liability should not be accrued because the loss is
not probable.

2. The probable award should be accrued by a charge to an estimated loss and a credit to an estimated liability of $1,000,000.
Henderson Co. should disclose the following in the notes to the financial statements: the amount of the suit, the nature of the
contingency, the reason for the accrual, and the range of the possible loss.

The accrual is made because it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. The lowest amount of the range of possible losses is used when no amount is a better estimate than any other
amount.

3. Kroft should not record the gain contingency until it’s realized. Usually, gain contingencies are neither accrued nor disclosed. The
$1,000,000 gain contingency should be disclosed only if the probability that it will be realized is very high.

Ex. 13-151—Premiums.
Irwin Music Shop gives its customers coupons redeemable for a poster plus a Bo Diddley CD. One coupon is issued for each dollar of
sales. On the surrender of 100 coupons and $6.00 cash, the poster and CD are given to the customer. It is estimated that 80% of the
coupons will be presented for redemption. Sales for the first period were $700,000, and the coupons redeemed totaled 420,000. Sales
for the second period were $840,000, and the coupons redeemed totaled 750,000. Irwin Music Shop bought 20,000 posters at
$2.50/poster and 20,000 CDs at $7.50/CD.

Instructions
Prepare the following entries for the two periods, assuming all the coupons expected to be redeemed from the first period were
redeemed by the end of the second period.

Entry Period 1 Period 2

(a) To record coupons redeemed
———————————————————————————————————————————
(b) To record estimated liability
———————————————————————————————————————————

Ans: NA., LO: 3, Bloom: AP, Difficulty: Difficult, Min: 8-10, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC:
Problem Solving,
IMA: Reporting, IFRS: None

Solution 13-151
Entry Period 1 Period 2
(a) Premium Liability 5,600

Premium Expense [(420,000 ÷ 100) × ($10 – $6)] 16,800 24,400

Cash (420,000 ÷ 100) × $6 25,200 45,000
Inventory of Premiums 42,000 75,000
——————————————————————————————————————————— (b) Premium Expense 5,600*
2,480 Premium Liability 5,600 2,480
*[(700,000 × .80) – 420,000] ÷ 100 × $4

Ex. 13-152—Premiums.
Sterling Co. includes one coupon in each bag of dog food it sells. In return for 4 coupons, customers receive a dog toy that the
company purchases for $1.50 each. Sterling's experience indicates that 60 percent of the coupons will be redeemed. During 2017,
150,000 bags of dog food were sold, 18,000 toys were purchased, and 60,000 coupons were redeemed. During 2018, 180,000 bags of
dog food were sold, 24,000 toys were purchased, and 90,000 coupons were redeemed.

Instructions
Determine the premium expense to be reported in the income statement and the premium liability on the balance sheet for 2017 and
2018.

Ans: NA., LO: 3, Bloom: AP, Difficulty: Difficult, Min: 12, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA:
Reporting, IFRS: None
Solution 13-152
2017 2018

Premium expense $33,750 (1) $40,500 (3)

Premium liability 11,250 (2) 18,000 (4)

(1) 150,000 × .6 = 90,000; 90,000 ÷ 4 = 22,500; 22,500 × $1.50 = $33,750.

(2) 60,000 ÷ 4 = 15,000; 22,500 – 15,000 = 7,500; 7,500 × $1.50 = $11,250.
(3) 180,000 × .6 = 108,000; 108,000 ÷ 4 = 27,000; 27,000 × $1.50 = $40,500.
(4) 90,000 ÷ 4 = 22,500; 7,500 + 27,000 – 22,500 = 12,000; 12,000 × $1.50 = $18,000.

PROBLEMS

Pr. 13-153—Accounts and Notes Payable.

Described below are certain transactions of Lamar Company for 2018:

1. On May 10, the company purchased goods from Fox Company for $75,000, terms 2/10, n/30. Purchases and accounts payable
are recorded at net amounts. The invoice was paid on May 18.

2. On June 1, the company purchased equipment for $150,000 from Rao Company, paying $50,000 in cash and giving a one-year,
9% note for the balance.

3. On September 30, the company discounted at 10% its $300,000, one-year zero-interest-bearing note at Virginia State Bank.

Instructions
(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.
(b) Prepare the adjusting entries necessary at December 31, 2018 in order to properly report interest expense related to the above
transactions. Assume straight-line amortization of discounts.
(c) Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Lamar Company's
December 31, 2018 balance sheet.

Ans: NA., LO: 1, Bloom: AP, Difficulty: Difficult, Min: 15, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA:
Reporting, IFRS: None

Solution 13-153
(a) May 10, 2018

Purchases/Inventory 73,500

Accounts Payable 73,500

May 18, 2018
Accounts Payable 73,500

Cash 73,500
June 1, 2018
Equipment 150,000

Cash 50,000

Notes Payable 100,000

Solution 13-153 (cont.)

September 30, 2018

Cash 270,000
Discount on Notes Payable 30,000
Notes Payable 300,000

(b) Interest Expense 5,250

Interest Payable ($100,000 × .09 × 7/12) 5,250

 Interest Expense 7,500

Discount on Notes Payable ($30,000 × 3/12) 7,500

(c) Current Liabilities

Interest payable $ 5,250

Note payable—Rao Company 100,000

Note payable—Virginia State Bank $300,000

Less: Discount on note 22,500 277,500

$382,750
Pr. 13-154—Refinancing of short-term debt.
At the financial statement date of December 31, 2017, the liabilities outstanding of Pollard Corporation included the following:

1. Cash dividends on common stock, $50,000, payable on January 15, 2018.

2. Note payable to Wabaso State Bank, $470,000, due January 20, 2018.
3. Serial bonds, $1,800,000, of which $450,000 mature during 2018.
4. Note payable to Orlando National Bank, $300,000, due January 27, 2018.

The following transactions occurred early in 2018:

January 15: The cash dividends on common stock were paid.
January 20: The note payable to Wabaso State Bank was paid.
January 25: The corporation entered into a financing agreement with Wabaso State Bank, enabling it to borrow
up to $500,000 at any time through the end of 2020. Amounts borrowed under the agreement would
bear interest at 1% above the bank's prime rate and would mature 3 years from the date of the loan.
The corporation immediately borrowed $400,000 to replace the cash used in paying its January 20
note to the bank.

January 26: 40,000 shares of common stock were issued for $350,000. $300,000 of the proceeds was used to
liquidate the note payable to Orlando National Bank.
February 1: The financial statements for 2017 were issued.

Instructions
Prepare a partial balance sheet for Pollard Corporation, showing the manner in which the above liabilities should be presented at
December 31, 2017. The liabilities should be properly classified between current and long-term, and appropriate note disclosure should
be included.

Ans: NA., LO: 2, Bloom: AP, Difficulty: Difficult, Min: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting, IFRS: None
Solution 13-154
Current liabilities:
Dividends payable $ 50,000
Notes payable— Wabaso State Bank 470,000
Currently maturing portion of serial bonds 450,000
Total current liabilities $ 970,000

Long-term debt:
Note payable—Orlando National Bank, refinanced in
January, 2018—Note 1 300,000
Serial bonds not maturing currently 1,350,000
Total long-term debt 1,650,000
Total liabilities $2,620,000

Note 1: On January 26, 2018, the corporation issued 40,000 shares of common stock and received proceeds totaling $350,000, of
which $300,000 was used to liquidate a note payable that matured on January 27, 2018. Accordingly, such note payable has been
classified as long-term debt at December 31, 2017.

Pr. 13-155—Premiums.
Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar wrappers presented by customers together with
$2. The purchase price of each mug to the company is $2.40; in addition it costs $1.60 to mail each mug. The results of the premium
plan for the years 2017 and 2018 are as follows (assume all purchases and sales are for cash):
2017 2018

Coffee mugs purchased 720,000 800,000

Candy bars sold 5,600,000 6,750,000
Wrappers redeemed 2,800,000 4,200,000
2017 wrappers expected to be redeemed in 2018 2,000,000

2018 wrappers expected to be redeemed in 2019 2,700,000

Instructions
(a) Prepare the general journal entries that should be made in 2017 and 2018 related to the above plan by Kane Candy.
(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the Kane
Candy Company balance sheet and income statement at the end of 2017 and 2018.

Ans: NA., LO: 3, 4, Bloom: AP, Difficulty: Difficult, Min: 20-25, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA
PC: Problem
Solving, IMA: Reporting, IFRS: None

Solution 13-155
(a) 2017

Inventory of Premiums 1,728,000

Cash 1,728,000

(720,000 × $2.40 = $1,728,000)

Cash 5,600,000

Sales Revenue 5,600,000

(5,600,000 × $1 = $5,600,000)

Solution 13-155 (cont.)

Cash 112,000
Premium Expense 560,000

Inventory of Premiums 672,000

[2,800,000 ÷ 10 = 280,000 × ($2.00 – $1.60) = $112,000 280,000 × $2.40 =
$672,000]

Premium Expense 400,000

Premium Liability 400,000

(2,000,000 ÷ 10 = 200,000 × $2 = $400,000)

2018
Inventory of Premiums 1,920,000

Cash 1,920,000
(800,000 × $2.40 = $1,920,000)

Cash 6,750,000

Sales Revenue 6,750,000

(6,750,000 × $1 = $6,750,000)

Cash 168,000
Premium Liability 400,000
Premium Expense 440,000

Inventory of Premium 1,008,000

 [4,200,000 ÷ 10 = 420,000 × ($2.00 – $1.60) = $168,000
420,000 × $2.40 = $1,008,000]

Premium Expense 540,000

Premium Liability 540,000

(2,700,000 ÷ 10 = 270,000 × $2 = $540,000)

(b) Balance Sheet

Name Class 2017 2018

Inventory of Premiums Current Asset $1,056,000 $1,968,000
Premium Liability Current Liability 400,000 540,000

Income Statement

Name Class 2017 2018

Premium Expense Operating Expense $960,000 $980,000

Pr. 13-156—Warranties.
Merritt Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the
company to perform periodic services and to replace defective parts. During 2017, the company sold 1,200 computers.
Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor per unit.
(Assume sales all occur at December 31, 2017.)

In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $16,000 for parts and $24,000 for labor.

Instructions
(a) Record give the entries to reflect the above transactions (accrual method) for 2017 and 2018.
(b) The transactions of part (a) create what balance under current liabilities in the 2017 balance sheet?
Ans: NA., LO: 3, Bloom: AP, Difficulty: Moderate, Min: 10, AACSB: Analytic, AICPA BB:
None, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: Reporting, IFRS: None

Solution 13-156
(a) 2017

Accounts Receivable 1,800,000

Sales Revenue 1,800,000

Warranty Expense 120,000

Warranty Liability 120,000

2018
Warranty Liability 40,000

Inventory 16,000

Cash, Inventory, Accrued Payroll 24,000

(b) 2017 Current Liabilities—Warranty Liability $60,000.

(The remainder of the $120,000 liability is a long-term liability.)