978-1133939283 Chapter 11 Solution Manual Part 2

12.

13.

14.

2.

Problems

P1. Identification of Current Liabilities, Contingencies, and Commitments

5.

6.

7.

ge

fi

The items that would not be expected to be listed on a balance sheet include con-

tingent liabilities and commitments. The items that would be listed on the balance

liability.

dj

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1. 2013

× 0.10 × 36

=

2014

=

2.

/

P2. Notes Payable and Wages Payable

Part A

$43,200

$426.08

365

To accrue interest expense

*Rounded

$284.05

When a company has notes payable, the user would also expect to see a current

*

11-12

1.

2.

2013

To record the payroll

P2. Notes Payable and Wages Payable (Concluded)

Part B

2013

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3.

P3. Product Warranty Liability

Warranty replacements and related

If the product warranty liability is underestimated, the current year’s income is over-

revenue during September

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1.

(×

*Rounded

0.062

0.05

days*

P4. Identification and Evaluation of Current Liabilities

$ 9,000.00

2,500.00

2,310.00

2,213.50

1,128.40

$44,270

$18,200

$18,200 0.062

=4.8

Days’ Payable = Payables Turnover

sooner than the 76.0 days would indicate.

76.0

times =

4.8 times. This position means that it takes on average 76.0 days for the company to

pay its accounts payable. Although the company seems to be profitable, its liquidity is

highly questionable. A majority of its current assets are dryer inventory, which must

be sold before it will generate cash, and most of its current liabilities must be paid

Sales tax payable

Social Security tax payable—employees

Social Security tax payable—employer

The current liabilities of Styka Repair Shop as of December 31, 2014, are as follows:

Accounts payable

Notes payable

Property taxes payable

)

Styka has a negative working capital of $3,852.10, and the payables turnover is only

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1. a.

b.

2.

P5. Applications of Present Value

Present value of a future payment (Table 1 in Appendix B)

Factor: 10%, 3 periods

Present value of an ordinary annuity (Table 2 in Appendix B)

Factor: 10%, 4 periods

The fundamental reason present value is a useful tool in making business decisions

is that it allows the decision maker to compare various alternatives in the present,

when business decisions are actually made.

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1. 1. 8.

6. 13.

7. 14.

2.

The items that would not be expected to be listed on a balance sheet include con-

tingent liabilities and commitments. The items that would be listed on the balance

fm

g

j

P6. Identification of Current Liabilities, Contingencies, and Commitments

sheet with a dollar amount and the ones that would involve the most judgment or

discretion include the estimated liabilities such as income taxes payable, property

taxes payable, promotional costs, product warranty liability, and vacation pay

dl

Alternate Problems

11-17

1.

2.

*Rounded

Part A

When a company has notes payable, the user would also expect to see a current

Paid note plus interest

year

To accrue interest expense at end of

liability for interest payable on the note. If interest payable does not appear, it may

P7. Notes Payable and Wages Payable

2014

11-18

1. 2014

To record payroll expenses

Computations:

P7. Notes Payable and Wages Payable (Concluded)

Part B

11-19

450 × 0.20 × $120 = $10,800

3.

for January, computed as follows:

require repair × average cost of parts

P8. Product Warranty Liability

HDTVs sold × percent expected to

To record estimated warranty expense

If the product warranty liability is overestimated, the current year’s income is

11-20