Problem 8-6A
Requirement 1
Cash 3,500
Requirement 2
Unearned Revenue 728
Sales Revenue ($728 / 1.04) 700
Requirement 3
Unearned Revenue
728 3,500
Problem 8-7A
Requirement 1
The likelihood of loss is reasonably possible rather than probable, so no journal
Requirement 2
Environmental Printing has a contingent gain that is probable and can be
reasonably estimated within a range between $6.5 and $9 million. Contingent gains
Requirement 3
Environmental Printing should record a loss and a liability for the minimum
amount ($500,000) and disclose the range between $500,000 and $900,000 in the
footnotes to the financial statements. The entry is as follows:
Loss 500,000
Problem 8-8A
Requirement 1
The reporting for this situation depends on the likelihood of loss occurring. If the
likelihood of loss is reasonably possible rather than probable, no journal entry is
recorded. However, if the likelihood of loss is probable, the following entry would
be recorded:
Loss 130,000,000
Requirement 2
The contingent loss is probable and reasonably estimable, so it would be recorded
as follows:
Loss 150,000,000
Requirement 3
Dinoco has a contingent gain that is probable and can be reasonably estimated at
$150 million. Contingent gains are not recorded until the gain is certain. Though
Problem 8-9A
Requirement 1
($ in millions)
Total
Current
Assets
÷
Total
Current
Liabilities
= Current
Ratio
Home Depot $15,372 ÷ $11,462 = 1.34
Home Depot has a better current ratio than Lowe’s. The current ratios for Home
Depot and Lowe’s are both higher than the current ratios for United Airlines and
American Airlines. The building supply industry maintains a higher current ratio.
Requirement 2
($ in millions)
Quick
Assets
÷
Total
Current
Liabilities
= Acid-Test
Ratio
Requirement 3
The purchase of additional inventory on credit would increase current assets
(inventory) and current liabilities (accounts payable) by the same amount. This
Problem 8-1B
List A List B
_i__ 1. Interest expense is recorded in the period
a. The riskiness of a
_d__ 2. Payment is reasonably possible and can be
b. Current portion of
_h__ 3. Cash, current investments, and accounts
c. Recording a contingent
_c__ 4. Payment is probable and can be reasonably
d. Disclosure of a
_j__ 5. Gift cards. e. Interest expense
_b__ 6. Long-term debt maturing within one year. f. FICA
_f__ 7. Social Security and Medicare. g. Commercial paper
_g__ 8. Unsecured notes sold in minimum
h. Acid-test ratio
_a__ 9. Classifying liabilities as either current or
i. Accrual accounting
_e__ 10. Incurred on a notes payable. j. Unearned revenue
Problem 8-2B
Requirement 1
(a). November 1, 2015
Cash 21,000,000
(b). November 1, 2015
Notes Receivable 21,000,000
Requirement 2
(a). December 31, 2015
Interest Expense ($21 million x 7% x 2/12) 245,000
(b). December 31, 2015
Interest Receivable ($21 million x 7% x 2/12) 245,000
Requirement 3
(a). April 30, 2016
Notes Payable 21,000,000
Interest Expense ($21 million x 7% x 4/12) 490,000
Interest Payable ($21 million x 7% x 2/12) 245,000
(b). April 30, 2016
Cash 21,735,000
Interest Revenue ($21 million x 7% x 4/12) 490,000
Interest Receivable ($21 million x 7% x 2/12) 245,000
Problem 8-3B
Requirement 1
January 31
Salaries Expense 500,000
Income Tax Payable 135,000
FICA Tax Payable 38,250
Requirement 2
January 31
Salaries Expense (fringe benefits) 73,000
Accounts Payable (to Blue Cross) 13,000
Requirement 3
January 31
Payroll Tax Expense (total) 69,250
FICA Tax Payable 38,250
Problem 8-4B
Requirement 1
January 24
Salaries Expense 2,500,000
Income Tax Payable 537,500
FICA Tax Payable 191,250
Requirement 2
January 24
Salaries Expense (fringe benefits) 201,250
Accounts Payable (Medical Insurance) 50,000
Accounts Payable (Dental Insurance) 17,500
Requirement 3
January 24
Payroll Tax Expense (total) 346,250
FICA Tax Payable 191,250
Problem 8-5B
Requirement 1
$9,128,000 = $560 per season ticket
16 games
Requirement 2
Cash 9,128,000
Requirement 3
Unearned Revenue 570,500
Problem 8-6B
Requirement 1
Cash 2,300
Requirement 2
Unearned Revenue 742
Sales Revenue ($742/1.06) 700
Requirement 3
Unearned Revenue
Problem 8-7B
Requirement 1
Bad Debt Expense ($29 million x 3%) 870,000
Requirement 2
Compact Electronics has a contingent gain that is probable and can be reasonably
estimated. Contingent gains are not recorded until the gain is certain. Though
Requirement 3
Loss 600,000
Requirement 4
The likelihood of loss is reasonably possible rather than probable, so no journal
entry is recorded. However, full disclosure of the contingent liability and the
Problem 8-8B
Requirement 1
The contingent liability is reasonably possible and can be reasonably estimated
within a range. Because the loss is not probable, no journal entry for a loss and
Requirement 2
The contingent liability is probable and reasonably estimable, so it must be
reported. Because the estimate of the loss is a range where no amount within the
range is a better estimate than any other amount, the minimum amount of the range
will be recorded as follows:
Loss
1,500,000
The range of the potential loss (from $1.5 to $2.25 million) should also be
disclosed.
Requirement 3
Authors Academic Publishing has a contingent gain that is probable and can be
reasonably estimated at $3 million. Contingent gains are not recorded until the gain
Problem 8-9B
Requirement 1
($ in millions)
Total
Current
Assets
÷
Total
Current
Liabilities
= Current
Ratio
United Airlines (0.97) has the best current ratio followed by Southwest (0.91).