Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
DQ1.
Discussion Questions
it is in fact a definitely determinable liability. However, the FASB does require com-
No, the contract should not be considered a liability on the books for the team until
its operating cash needs.
payable, a firm may not be taking advantage of a creditor's willingness to finance
CHAPTER 11—Solutions
CURRENT LIABILITIES AND
FAIR VALUE ACCOUNTING
11-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Short Exercises
SE1. Issues in Accounting for Liabilities
11-2
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
)
1.
Simple interest
2,800
*Rounded
SE6. Simple and Compound Interest
To record replacement of clocks
SE4. Product Warranty Liability
×clocks
$12.50(
SE5. Types of Liabilities
under warranty
11-3
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1.
×=
2.
4.
SE7. Present Value Calculations
Five annual payments of $5,000 at 9% (see Table 2 in Appendix B)
$24,000
Single payment of $24,000 at 6% for 12 years (see Table 1 in Appendix B)
Twelve annual payments of $2,000 at 6% (see Table 2 in Appendix B)
0.497 $11,928
11-4
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1.
2. Aug. 31 245,100
215,000
19,350
10,750
*Rounded
E1A. Issues in Accounting for Liabilities
Service revenue for the month:
Service Revenue
Federal Excise Tax Payable
Sales Tax Payable
Revenue and related liabilities
Accounts Receivable
E3A. Sales and Excise Taxes
Exercises: Set A
11-5
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1.
2.
/=
Federal unemployment tax payable
Total payroll for October equals wages:
Employees' state income taxes payable
Wages payable
Medical insurance premiums payable
Employees' federal income taxes payable
Medical insurance premiums payable
E4A. Payroll Expenses
Medicare tax payable
Components of the payroll:
Social security tax payable
Total monthly payroll
219,228.50
12,870.00
5,379.50
0.20
$64,350$12,870
$371,000.00
$ 83,410.38
3,090.96
457.92
51,480.00
23,002.00
15,636.00
$ 94,884.00
$371,000.00
Computations:
Total payroll expenses
State unemployment tax payable
Medicare tax payable
5,379.50
Payroll expenses:
11-6
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
( – )××=
*/=
1.
E8A. Determining an Advance Payment
$20,000
rounded
E6A. Vacation Pay Liability
Davis should expect to pay $50,311.80.
E7A. Contingencies and Commitments
2. and 3.
Wages of employees on vacation
0.061
0.65 0.061
349
$300,000 $11,102
for 5 periods at 8%
1.
E9A. Present Value Calculations
Single payment of $12,000 at 6% for 12 years (see Table 1 in Appendix B)
2. Twelve annual payments of $1,000 at 6% (see Table 2 in Appendix B)
3. Single payment of $2,500 at 9% for 5 years (see Table 1 in Appendix B)
4. Five annual payments of $2,500 at 9% (see Table 2 in Appendix B)
*
11-7
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Factor from
Table 1*
Present Value
of $30,000
E10A. Present Value of a Lump-Sum Contract
E12A. Valuing an Asset for the Purpose of Making a Purchasing Decision
Years
*Table 2 in Appendix B
To find the present value of the purchase transaction:
Rate
At a required rate of return of 14 percent, the cost of the machine is greater than the
11-8
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
The range between the offer to buy and the offer to sell is from $904,000 to $1,493,800.
E13A. Deferred Payment
Future
Payment
Factor
(3 periods, 4%)
×=
Since the 16 percent annual interest is compounded quarterly, the applicable interest
rate is 4 percent (16 percent / 4 quarters in a year), and the number of periods is 3
(9 months / 3 months in a quarter). The purchase (sale) price is computed as follows
(see Table 1 in Appendix B):
Present
Value
11-9
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
( + ) / 2
Current Assets ‒ Current Liabilities
2014
Current Assets ‒ Current Liabilities
E15A. Measuring Short-Term Liquidity
2013
*Rounded
Note to Instructor: Solutions for Exercises: Set B are provided separately on the
*Rounded
Copia's working capital has declined from $55,000 to $50,000 because current liabilities
Payables Turnover = Cost of Goods Sold +/‒ Change in Merchandise Inventory
Average Accounts Payable
=
Working Capital
Working Capital
Payables Turnover
=
=
=
=
$40,000$425,000 +
$65,000 $55,000
Cost of Goods Sold +/‒ Change in Merchandise Inventory
Average Accounts Payable
11-10
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
