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195) The University of Nebraska football stadium is the third largest city in the state of Nebraska
on game days. The stadium has sold out every game since the late 1960s. The seating capacity is
about 80,000 fans. Assume the stadium sells out all six home games before the season begins,
and the athletic department collects $38.4 million in ticket sales.
Required:
1. What is the average price per season ticket and average price per individual game ticket sold?
2. Record the advance collection of $38.4 million in ticket sales.
3. Record the revenue recognized after the first home game is completed.
196) During its first three months of operation, Palimino’s sold gift cards in various amounts
totaling $5,200. The gift cards are redeemable for meals within one year of the purchase date.
Gift cards totaling $1,900 were presented for redemption prior to year-end on December 31. The
sales tax rate on restaurant sales is 7%, assessed at the time meals (not gift cards) are purchased.
Palimino’s will remit sales taxes in January.
Required:
1. Record (in summary form) the $5,200 in gift cards sold (keeping in mind that, in actuality,
each sale of a gift card or a meal would be recorded individually).
2. Record the $1,900 in gift cards redeemed. The $1,900 includes a 7% sales tax of $124.30.
3. Determine the balance in the deferred revenue account (remaining liability for gift cards) to be
reported on the December 31 balance sheet.
197) Leisure Luggage manufactures a line of luggage designed for airline travel. Assume the
following transactions occur during the year ended December 31, 2021.
Required:
Record any amounts as a result of each of these contingencies.
1. In November 2021, Leisure Luggage became aware of a design flaw in one of its lines of
luggage. A product recall is probable and is estimated to cost the company between $300,000
and $500,000.
2. Leisure Luggage is the defendant in a patent infringement lawsuit brought by a competitor. It
appears reasonably possible Leisure Luggage will lose the case, and potential losses are
estimated to be $1.2 million.
3. Credit sales were $12 million for 2021. Although no customer accounts have been shown to be
uncollectible, the company estimates that 3% of credit sales will eventually prove uncollectible.
4. Leisure Luggage is the plaintiff in a lawsuit filed against a supplier. The suit is in final appeal,
and attorneys advise it is virtually certain that Leisure Luggage will win and be awarded
$800,000.
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198) Washington County Airport (WCA) faces three potential contingency situations, described
below. The end of the fiscal year is December 31, 2021.
Required:
Determine the appropriate means of reporting each situation for the year ended December 31,
2021 and record any necessary entries. Explain your reasoning.
1. WCA is suing a national airline. WCA’s lawyers confirm that it is probable WCA will be
awarded damages of $500,000 in the case.
2. In June, 2021 a worker was injured in an accident and has sued the company for $200,000.
Legal counsel believes it is reasonably possible, but not probable, that the outcome of the suit
will be unfavorable, and that the settlement would cost the company from $100,000 to $200,000.
3. A suit for $1.5 million was filed by an airline on November 3, 2021. Legal counsel believes an
unfavorable outcome is probable. A reasonable estimate of the award payment to the airline is
between $500,000 and $1 million. No amount within this range is a better estimate of potential
damages than any other amount.
199) Selected financial data regarding two competing airlines are provided as follows:
($ in millions)
Company A
Company B
Current assets
Cash and cash equivalents
$1,225
$4,684
Short-term investments
3,104
1,351
Net receivables
811
1,844
Inventory
525
388
Other current assets
270
637
Total current assets
$5,935
$8,904
Current liabilities
Accounts payable
$6,702
$6,991
Short-term debt
2,672
2,407
Other current liabilities
1,624
Total current liabilities
$9,374
$11,022
Required:
1. Calculate the current ratio for both companies. Which airline has the best current ratio?
2. Calculate the acid-test (quick) ratio for both companies. Which airline has the best acid-test
ratio?
3. How would the purchase of additional inventory by issuing short-term debt affect the current
ratio? How would it affect the acid-test ratio?
Company A
Company B
Company A
Company B
100
200) Why is it important to distinguish between current and long-term liabilities?
201) Explain why we record interest in the period in which we incur it rather than in the period
we pay it.
101
202) Name as many items as you can that are withheld from employee payroll checks. Which
employee deductions are required by law and which are voluntary? Name as many items as you
can that are employer payroll costs in addition to the employee’s salary. Which employer costs
are required by law and which are voluntary?
203) Retailers like McDonald’s, American Eagle, and Apple Computer sell a large number of gift
cards. Explain how these companies account for the sale of gift cards.
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204) Define a contingent liability. Provide three common examples. Under what circumstances
should a firm report a contingent liability?