Brief Exercise 13–6
December 12
January 16
Brief Exercise 13–7
In 2018 Lizzie would recognize $11,500 of revenue ($4,000 + 3,000 + 2,500
Brief Exercise 13–8
Brief Exercise 13–9
1. Current liability—The requirement to classify currently maturing debt as a current liability
2Long-term liability—The current liability classification includes (a) situations in which the
Brief Exercise 13–10
Under U.S. GAAP, the debt would be classified as long-term for both
Brief Exercise 13–11
Under IFRS, the debt would be classified as long-term if the refinancing was
Brief Exercise 13–12
This is a loss contingency and the estimated warranty liability is credited and
Warranty Liability
__________________________________________
Brief Exercise 13–13
This is a loss contingency and should be accrued because it is both probable
that the confirming event will occur and the amount can be at least reasonably
estimated. Goo Goo should report a $5.5 million loss in its income statement
and a $5.5 million liability in its balance sheet
A disclosure note also is appropriate.
Brief Exercise 13–14
This is a gain contingency. Gain contingencies are not accrued even if the gain
Brief Exercise 13–15
This is a loss contingency. A liability should be accrued if it is both probable
Brief Exercise 13–16
Only the third situation’s costs should be accrued. A liability should be
accrued for a loss contingency if it is both probable that the confirming event
Brief Exercise 13–17
Under U.S. GAAP, no liability would be recognized, because a 51% chance is
less than the level of probability typically associated with “probable” in the
Brief Exercise 13–18
No disclosure is required because, although an investigation is ongoing, no
Exercise 13–1
Requirement 1
Requirement 2
Requirement 3
Interest expense ($16,000,000 x 12% x 7/12)…….. 1,120,000
Exercise 13–2
Exercises
1. Interest rate Fiscal year-end
12% December 31
2. Interest rate Fiscal year-end
10% September 30
3. Interest rate Fiscal year-end
9% October 31
4. Interest rate Fiscal year-end
6% January 31
Exercise 13–3
2018
Jan. 13 No entry is made for a line of credit until a loan actually is made. It
would be described in a disclosure note.
Feb. 1
……………………………………………………Notes payable
May 1
Dec. 1
………………………………….Notes payable (face amount)
Dec. 31
properly, interest should be recorded at that rate times the outstanding balance
times one-twelfth of a year:
………………………………….Discount on notes payable
However the same results are achieved if interest is recorded at the
discount rate times the maturity amount times one-twelfth of a year:
………………………………….Discount on notes payable
Exercise 13–3 (concluded)
2019
Sept. 1
Interest expense ($10,000,000 x 9% x 8/12)*………………. 600,000
………………………………….Discount on notes payable
…………………………………………………………………..600,000
Notes payable (balance)……………………………………….. 10,000,000
………………………………………….Cash (maturity amount)
…………………………………………………………………….10,000,000
* or, ($9,325,000 x 9.6515% x 8/12) = $600,000
Exercise 13–4
Wages expense (increases wages expense to $410,000)………… 6,000
Liability—compensated future absences ……………….. 6,000*
Exercise 13–5
Requirement 1
Requirement 2
Exercise 13–6
Requirement 1
Cash…………………………………………………………………. 5,200
Deferred revenue ……………………………………………. 5,200
Requirement 2