ACCT 302 Connect Homework 13 Current Liabilities and Contingencies Assignment solutions answers

ACCT 302 Connect Homework 13 Current Liabilities and Contingencies Assignment solutions complete answers 

 

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On October 1, Eder Fabrication borrowed $70 million and issued a nine-month, 6% promissory note. Interest was payable at maturity.
 
Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

 

On December 12, 2021, Pace Electronics received $24,400 from a customer toward a cash sale of $244,000 of diodes to be completed on January 16, 2022.

What journal entries should Pace record on December 12 and January 16? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

During December, Rainey Equipment made a $760,000 credit sale. The state sales tax rate is 6% and the local sales tax rate is 1.5%.
 
Prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Right Medical introduced a new implant that carries a five-year warranty against manufacturer’s defects. Based on industry experience with similar product introductions, warranty costs are expected to approximate 2% of sales. Sales were $26 million and actual warranty expenditures were $32,500 for the first year of selling the product. What amount (if any) should Right report as a liability at the end of the year? (Enter your answers in whole dollars.)

 

Consultants notified management of Goo Goo Baby Products that a crib toy poses a potential health hazard. Counsel indicated that a product recall is probable and is estimated to cost the company $4.8 million.
 
How will this affect the company’s income statement and balance sheet this period? (Enter your answers in millions rounded to 1 decimal place (i.e., 1,200,000 should be entered as 1.2).)

 

The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.

 

2021

Jan.
 
13
 
Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $27.0 million at the bank’s prime rate.
Feb.
 
1
 
Arranged a three-month bank loan of $6.6 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 13% was payable at maturity.
May
 
1
 
Paid the 13% note at maturity.
Dec.
 
1
 
Supported by the credit line, issued $16.3 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 12% discount rate.
 
 
31
 
Recorded any necessary adjusting entry(s).
2022

Sept.
 
1
 
Paid the commercial paper at maturity.
 

Required:

Prepare the appropriate journal entries through the maturity of each liability. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

 

CircuitTown commenced a gift card program in January 2021 and sold $10,900 of gift cards in January, $15,250 in February, and $21,600 in March 2021 before discontinuing further gift card sales. During 2021, gift card redemptions were $6,100 for the January gift cards sold, $6,650 for the February cards, and $6,650 for the March cards. CircuitTown considers gift cards to be “broken” (not redeemable) 10 months after sale.

Required:
1. How much revenue will CircuitTown recognize with respect to January gift card sales during 2021?
2. Prepare journal entries to record the sale of January gift cards, redemption of gift cards (ignore sales tax), and breakage (expiration) of gift cards.
3. How much revenue will CircuitTown recognize with respect to March gift card sales during 2021?
4. What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2021?

 

The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2021, the allowance account had a credit balance of  $81,950. Credit sales for 2021 totaled $2,850,000 and the year-end accounts receivable balance was $695,000. During this year, $78,750 in receivables were determined to be uncollectible. Manda Panda anticipates that 2% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.

Required:
1. Does this situation describe a loss contingency?
2. What is the bad debt expense that Manda Panda should report in its 2021 income statement?
3. Prepare the appropriate journal entry to record the contingency.
4. Complete the table below to calculate the net realizable value Manda Panda should report in its 2021 balance sheet.

 

The Commonwealth of Virginia filed suit in October 2019 against Northern Timber Corporation, seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the 2020 financial statements were issued in 2021, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settlement would be $1,090,000 in penalties. The following entry was recorded:

 

General Journal
Debit
Credit
Loss—litigation
1,090,000
 
Liability—litigation
 
1,090,000
 
 

Late in 2021, a settlement was reached with state authorities to pay a total of $670,000 to cover the cost of violations.

Required:
1. Prepare any journal entries related to the change.
2. Would a disclosure note be required for the change in estimate?

 

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2021, the end of its fiscal year, included the following account balances. Manufacturing’s 2021 financial statements were issued on April 1, 2022.
   

 
 
 
Accounts receivable
$
95,750
Accounts payable
 
37,600
12% notes, payable to bank
 
667,000
Mortgage note payable
 
1,442,000
 
   
Other information:

a.   The bank notes, issued August 1, 2021, are due on July 31, 2022, and pay interest at a rate of 12%, payable at maturity.

b.   The mortgage note is due on March 1, 2022. Interest at 11% has been paid up to December 31 (assume 11% is a realistic rate). Manufacturing intended at December 31, 2021, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $442,000 in cash on the principal balance and refinanced the remaining $1,000,000.

c.    Included in the accounts receivable balance at December 31, 2021, were two subsidiary accounts that had been overpaid and had credit balances totaling $19,050. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases.

d.   On November 1, 2021, Manufacturing rented a portion of its factory to a tenant for $26,400 per year, payable in advance. The payment for the 12 months ended October 31, 2022, was received as required and was credited to rent revenue.

   
Required:
1. Prepare any necessary adjusting journal entries at December 31, 2021, pertaining to each item of other information (a–d).
2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet.

 

The Heinrich Tire Company recalled a tire in its subcompact line in December 2021. Costs associated with the recall were originally thought to approximate $55 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $55 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
 

Loss Amount
Probability
$45 million
20%
$35 million
50%
$25 million
30%
 

An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2022. The risk-free rate of interest is 8%.
 
Required:
1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2021 for the loss and contingent liability? For the remainder of this problem, apply the expected cash flow approach of SFAC No. 7. Estimate Heinrich’s liability at the end of the 2021 fiscal year.
3. to 5. Prepare the necessary journal entries.

 

Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2021 fiscal year, the company had notes payable of $13.3 million due on February 8, 2022. Rushing sold 3.0 million shares of its $0.25 par, common stock on February 3, 2022, for $10.8 million. The proceeds from that sale along with $2.5 million from the maturation of some 3-month CDs were used to pay the notes payable on February 8.
 
Through his attorney, one of Rushing’s construction workers notified management on January 5, 2022, that he planned to sue the company for $1 million related to a work-site injury on December 20, 2021. As of December 31, 2021, management had been unaware of the injury, but reached an agreement on February 23, 2022, to settle the matter by paying the employee’s medical bills of $81,500.
 
Rushing’s financial statements were finalized on March 3, 2022.
 
Required:
1. What amount(s) if any, related to the situations described should Rushing report among current liabilities in its balance sheet at December 31, 2021?
2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilities in its balance sheet at December 31, 2021?
3. Assume that, as of March 3, management does not think it is probable that it will suffer a material loss because of the injury. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the settlement agreement had occurred on March 15, 2022, instead?
4. What amount(s) if any, related to the situations described should Rushing report among current liabilities and long-term liabilities in its balance sheet at December 31, 2021 if the work-site injury had occurred on January 3, 2022, instead?
 
(For all requirements, enter your answers in whole dollars.)