Reporting Method
C. Current liability
L. Long-term liability
D. Disclosure note only
N. Not reported
Item
__C__ 1. Accounts payable.
__C__ 2. Customer advances.
__C__ 3. Commercial paper.
__D__ 4. Unused line of credit.
__C__ 5. A loss contingency that is probable of occurring within
the next year and can be estimated.
__D__ 6. A loss contingency that is reasonably possible of
occurring within the next year and can be estimated.
__C__ 7. Notes payable due next year.
__C__ 8. Current portion of long-term debt.
__C__ 9. Sales tax collected from customers.
__L__ 10. Notes payable due in two years.
1. December 1, 2015 Debit Credit
Cash 60,000
2. December 31, 2015
Interest Expense ($60,000 x 10% x 1/12) 500
3. February 28, 2016
Chapter 8
Current Liabilities
EXERCISES
Exercise 8-1
Exercise 8-2
Notes Payable 60,000
Interest Expense ($60,000 x 10% x 2/12) 1,000
Interest Payable ($60,000 x 10% x 1/12) 500
1. September 1, 2015 Debit Credit
Cash 10,000,000
2. December 31, 2015
Interest Expense ($10 million x 6% x 4/12) 200,000
3. February 28, 2016
Notes Payable 10,000,000
Interest Expense ($10 million x 6% x 2/12) 100,000
Interest Payable ($10 million x 6% x 4/12) 200,000
1. September 1, 2015 Debit Credit
Notes Receivable 10,000,000
2. December 31, 2015
Interest Receivable ($10 mil. x 6% x 4/12) 200,000
Exercise 8-3
Exercise 8-4
3. February 28, 2016
Cash 10,300,000
Interest Revenue ($10 million x 6% x 2/12) 100,000
Interest Receivable ($10 million x 6% x 4/12) 200,000
1. $1,000,000 x .10 x 6/12 = $50,000
2. $1,000,000 x .08 x 3/12 = $20,000
3. $1,000,000 x .06 x 4/12 = $20,000
4. $1,000,000 x .04 x 7/12 = $23,333
January 13
No Journal Entry
February 1
Cash 2,000,000
May 1
Notes Payable 2,000,000
Interest Expense (2,000,000 x .06 x 3/12) 30,000
Exercise 8-5
Exercise 8-6
Total Salary Expense (10 x 40 hours x $20) $8,000
Less: Withholdings
Federal Income Taxes (8,000 x .15) 1,200
State Income Taxes (8,000 x .06) 480
FICA Taxes (8,000 x .0765) 612
FICA Taxes (8,000 x .0765) $612
January 31
Salaries Expense 1,000,000
Income Tax Payable 210,000
FICA Tax Payable 76,500
Exercise 8-7
Requirement 1
Requirement 2
Requirement 3
The company does not make an accounting entry to record the free skiing given to
Exercise 8-8
Requirement 1
January 31
Salaries Expense (fringe benefits) 30,000
January 31
Payroll Tax Expense (total) 138,500
FICA Tax Payable 76,500
January 31
Salaries Expense 250,000
Income Tax Payable 37,500
FICA Tax Payable ($250,000 x .0765) 19,125
January 31
Payroll Tax Expense (total) 34,625
Cash 10,000,000
Unearned Revenue 10,000,000
Requirement 2
Requirement 3
Exercise 8-9
Exercise 8-10
Requirement 1
Unearned Revenue 8,000,000
Unearned Revenue
January 31
Cash 53,000
Sales Revenue 50,000
January 31
Cash 106,000
Sales Revenue 6,000
Sales Tax Payable 6,000
Requirement 2
Requirement 3
The ending balance in Unearned Revenue is $2,000,000.
Exercise 8-11
Requirement 1
Requirement 2
Loss 1,000,000
Loss 5,000,000
Loss 4,000,000
Exercise 8-12
Requirement 1
The contingent liability is probable and reasonably estimable, so it must be reported.
Requirement 2
A $1 million loss (the minimum in a range) should be reported in its 2015 income
Requirement 3
A $1 million liability (the minimum in a range) should be reported in its 2015 balance
Requirement 4
Exercise 8-13
Requirement 1
The contingent liability is probable and reasonably estimable, so it must be recorded as
follows:
Requirement 2
Pacific Cruise Lines should record a loss and a liability for the minimum amount ($4
million) and disclose the range between $4 and $6 million in the footnotes to the
financial statements. The journal entry is as follows:
Requirement 1
Requirement 2
Warranty Expense ($800,000 x 4%) 32,000
Requirement 3
Warranty Liability 22,000
Cash 22,000
(Record actual warranty expenditures)
Requirement 4
Warranty Liability
Payment 22,000 32,000 Expense
Requirement 3
If the likelihood of loss is reasonably possible rather than probable, we record no entry
Requirement 4
If the likelihood of loss is remote, disclosure is usually not required.
Exercise 8-14
Yes, it’s probable that costs for warranties will be incurred and based on previous
Requirement 1
Yes, a contingent liability is an existing, uncertain situation that might result in a loss.
Requirement 2
Dow would record a contingency if the loss is probable and can be reasonably
Requirement 3
Loss 381,000,000
Requirement 1
Current Assets ÷ Current Liabilities = Current Ratio
Quick Assets ÷ Current Liabilities = Acid-Test Ratio
Requirement 2
Queen’s Line has a lower current ratio and a lower acid-test ratio than either United
Exercise 8-15
Exercise 8-16