978-1259722660 Chapter 13 Solution Manual Part 4

Exercise 13–18

Requirement 1

This is a loss contingency. Some loss contingencies don’t involve liabilities at

all. Some contingencies when resolved cause a noncash asset to be impaired, so

Requirement 2

Requirement 3

Requirement 4

Allowance for uncollectible accounts:

Beginning of 2018 $75,000

Net accounts receivable:

Exercise 13–19

Scenario 1

Scenario 2

No disclosure is required because an FDA claim is as yet unasserted, and an

Scenario 3

A disclosure note is required because an FDA claim is as yet unasserted, but an

assessment is probable. Since an unfavorable outcome is not thought to be

probable in the event of an assessment, no accrual is needed, but since an

Scenario 4

Accrual of the loss is required because an FDA claim is as yet unasserted, but

an assessment is probable. Since an unfavorable outcome also is thought to be

probable in the event of an assessment, accrual is needed. Keep in mind,

Exercise 13–20

Requirement 1

Requirement 2

Requirement 3

This is a loss contingency. Classical can use the information

occurring after the end of the year and before the financial statements are

issued to determine appropriate disclosure.

A disclosure note also is appropriate.

Requirement 4

This is a gain contingency. Gain contingencies are not accrued even if

the gain is probable and reasonably estimable. The gain should be

recognized only when realized. A disclosure note is appropriate.

Requirement 5

A disclosure note also is appropriate.

Requirement 6

Note: Because the rebate is offered as a promotion rather than provided

as part of a sales transaction, it really is a “coupon” as discussed in the

Additional Consideration Box in the text section for product warranties and

guarantees. An expense and liability is recorded for the estimated amount

Exercise 13–21

Requirement 1

Erismus would not recognize a liability, as U.S. GAAP defines

Requirement 2

Erismus would recognize a liability of $2,000,000, as it is probable

Requirement 3

Erismus would recognize a liability of $5,000,000, as it is probable

Requirement 4

Requirement 5

Exercise 13–22

Requirement 1

Erismus would recognize a liability of $1,000,000, as IFRS defines

Requirement 2

Erismus would recognize a liability of $3,000,000, as it is more likely

Requirement 3

Erismus would recognize a liability of $3,500,000, as it is more likely

Requirement 4

This is a gain contingency. Gain contingencies are accrued under

Requirement 5

This is a gain contingency. Gain contingencies are accrued under

Exercise 13–23

Item Reporting Method

__C_ 1. Commercial paper. N. Not reported

__D_ 2. Noncommitted line of credit. C. Current liability

__C_ 3. Customer advances. L. Long-term liability

__C_ 4. Estimated quality assurance warranty cost. D. Disclosure note

only

Exercise 13–24

Requirement 1

Accrued liability and expense

Actual expenditures (summary entry)

Requirement 2

Actual expenditures (summary entry)

Exercise 13–25

1. This is a change in estimate.

To revise the liability on the basis of the new estimate:

2. A disclosure note should describe the effect of a change in estimate on income

before extraordinary items, net income, and related per-share amounts for the

current period.

Exercise 13–26

The note describes a loss contingency. Dow anticipates a future sacrifice of

Dow considers the liability probable and the amount is reasonably estimable.

($ in millions)

In practice this liability would be accrued in multiple entries, increasing when Dow

Exercise 13–27

Salaries and wages expense (total amount earned)….. 500,000

Withholding taxes payable (federal income tax)…. 100,000

Payroll tax expense (total)………………………………… 68,250

Social security taxes payable (employer’s matching amount) 31,000