PROBLEM 13.2
December 5
1.
Cash ……………………………………………………….
500
Returnable Deposit (Liability) …………………………..
2.
Cash ……………………………………………………….
798,000
Sales Revenue (€798,000 ÷ 1.05) ………………………
760,000
Value-Added Taxes Payable
(€760,000 X .05) …………………………..
38,000
3.
Trucks (€120,000 X 1.05) …………………………..
126,000
Cash ……………………………………………………….
126,000
4.
Parking Lot ……………………………………………………….
PROBLEM 13.3
Entries for Payroll 1
Salaries and Wages Expense …………………………………..
1,040.00*
Withholding Taxes Payable (10% X $1,040)* ……..
104.00
Social Security Taxes Payable (8% X $1,040) …….
Union Dues Payable (2% X $1,040) …………………..
Cash ………………………………………………………………
832.00
*$200 + $150 + $110 + $250 + $330 = $1,040
Payroll Tax Expense ………………………………………………..
Social Security Taxes Payable (8% X $1,040) …….
Entries for Payroll 2 and 3
Salaries and Wages Expense …………………………………..
1,040.00*
Withholding Taxes Payable (10% X $1,040) ……….
104.00
Social Security Taxes Payable (8% X $1,040) …….
Cash ………………………………………………………………
832.00
Payroll Tax Expense ………………………………………………..
Social Security Taxes Payable
(8% X $1,040) ……………………………………………….
PROBLEM 13.3 (Continued)
Entries for Payroll 4
Salaries and Wages Expense …………………………………..
1,040.00
Withholding Taxes Payable (10% X $1,040) ………
104.00
Social Security Taxes Payable (8% X $1,040) ……
83.20
Union Dues Payable (2% X $1,040) …………………..
20.80
Cash ………………………………………………………………
832.00
Payroll Tax Expense ……………………………………………….
83.20
Social Security Taxes Payable (8% X $1,040) ……
83.20
Monthly Payment of Payroll Liabilities
Withholding Taxes Payable ($104.00 X 4) ………………….
Social Security Taxes Payable ($83.20 X 8) ……………….
Union Dues Payable ($20.80 X 4) ……………………………..
83.20
Cash ………………………………………………………………
PROBLEM 13.4
(a)
Name
Earnings
to Aug. 31
September
Earnings
Income Tax
Withholding
Social
Security
B. D. Williams
£ 6,800
£ 800
£ 80
£ 64
D. Raye
6,500
700
70
K. Baker
F. Lopez
A. Daniels
£2,680
Salaries and Wages Expense …………………………..
33,500
Withholding Taxes Payable …………………………..
3,350
Social Security Taxes Payable …………………………
2,680
Cash ……………………………………………………….
27,470
(b)
Payroll Tax Expense ……………………………………………….
Social Security Taxes Payable …………………………
2,680
(c)
Withholding Taxes Payable ……………………………………..
Social Security Taxes Payable …………………………..
Cash ……………………………………………………….
8,710
PROBLEM 13.5
(a)
Cash (400 X £2,500) ………………………………………………..
1,000,000
Warranty Expense (400 X [£155 + £185]) …………………..
136,000
Sales Revenue ……………………………………………….
1,000,000
Warranty Liability ……………………………………………
136,000
(b)
Current Liabilities:
Warranty Liability (£136,000 ÷ 2) ………………………
Long-term Liabilities:
Warranty Liability (£136,000 ÷ 2) ………………………
(c)
Warranty Liability ……………………………………………………
Inventory ……………………………………………………….
Salaries and Wages Payable …………………………..
PROBLEM 13.6
(a)
Cash ………………………………………………………………………
294,300
Sales Revenue (300 X R$900) …………………………..
270,000
Unearned Warranty Revenue (270 X $90) …………….
24,300
(b)
Current Liabilities:
Unearned Warranty Revenue (R$24,300/3) ………..
R$ 8,100
(Note: Warranty costs assumed to be
Long-term Liabilities:
(c)
Unearned Warranty Revenue …………………………………..
8,100
Warranty Revenue …………………………………………..
8,100
Warranty Expense …………………………………………………..
6,000
Inventory ……………………………………………………….
2,000
Salaries and Wages Payable …………………………..
4,000
(d)
Current Liabilities:
Unearned Warranty Revenue …………………………..
R$ 8,100
Long-term Liabilities:
Unearned Warranty Revenue …………………………..
R$ 8,100
PROBLEM 13.7
(a)
Cash ……………………………………………………….
4,440,000
Sales Revenue (600 X $7,400) …………………………..
4,440,000
Warranty Expense ([600 X $390] / 2) ………………………….
117,000
Inventory ($170 X 600 X 1/2) …………………………..
51,000
(b)
Warranty Expense ……………………………………………………
117,000
Warranty Liability ……………………………………………..
(c)
Warranty Liability …………………………………………………….
117,000
Inventory
51,000
Salaries and Wages Payable …………………………..
66,000
PROBLEM 13.8
Inventory of Premiums …………………………………………….
60,000
Cash ………………………………………………………………
60,000
(To record purchase of 40,000 puppets at
Cash ………………………………………………………………………
Sales Revenue ………………………………………………..
(To record sales of 480,000 boxes at
Premium Expense …………………………………………………..
34,500
Inventory of Premiums …………………………………….
34,500
[To record redemption of 115,000 coupons.
Computation: (115,000 ÷ 5) X €1.50 = €34,500]
December 31, 2020
Premium Expense …………………………………………………..
23,100
Premium Liability …………………………..……………….
23,100
[To record estimated liability for premium
claims outstanding at December 31, 2020.]
Total estimated redemptions (40%) ………………………….
Coupons redeemed in 2020 ……………………………………..
Cost of estimated claims outstanding (77,000 ÷ 5) X €1.50 = €23,100
PROBLEM 13.9
During 2019
(a)
Inventory of Premiums ……………………………………………
562,500
Cash ………………………………………………………………
562,500
(To record the purchase of 250,000
MP3 downloads at £2.25 each)
Cash ………………………………………………………………………
Sales Revenue ………………………………………………..
(To record the sale of 2,895,400 candy bars
at 30 pence each)
Cash [£600,000 – (240,000 X £.50)] …………………………..
Premium Expense …………………………………………………..
Inventory of Premiums ……………………………………
[To record the redemption of 1,200,000
wrappers, the receipt of £600,000
(1,200,000 ÷ 5) X £2.50, and the mailing
of 240,000 MP3 downloads]
Computation of premium expense:
240,000 Codes @ £2.25 each = ………………………
£540,000
Postage—240,000 X £.50 = …………………………..
120,000
£660,000
Less: Cash received—
240,000 X £2.50 …………………………………
600,000
Premium Expense …………………………………………………..
Premium Liability ……………………………………………
(To record the estimated liability for
premium claims outstanding at 12/31/19)
PROBLEM 13.9 (Continued)
During 2020
Inventory of Premiums …………………………………………….
742,500
Cash ………………………………………………………………
Cash ………………………………………………………………………
823,080
Sales Revenue ………………………………………………..
823,080
(To record the sale of 2,743,600 candy
bars at 30 pence each)
Premium Liability ……………………………………………………
Premium Expense …………………………………………………..
Inventory of Premiums …………………………………….
(To record the redemption of 1,500,000
wrappers, the receipt of £750,000
[(1,500,000 ÷ 5) X £2.50], and the mailing
of 300,000 Codes.)
Computation of premium expense:
300,000 Codes @ £2.25 = ………………………………
£675,000
Postage—300,000 @ £.50 = ………………………….
150,000
Less: Cash received—
(1,500,000 ÷ 5) X £2.50…………………………..
750,000
Premium expense for Codes issued …………………
Less: Outstanding claims at 12/31/19
charged to 2019 but redeemed in 2020 ……
14,500
December 31, 2020
Premium Expense …………………………………………………..
£ 17,500*
Premium Liability …………………………..……………….
17,500
PROBLEM 13.9 (Continued)
(b)
Amount
Account
2019
2020
Classification
*
£2.25 (250,000 – 240,000)
**
£2.25 (10,000 + 330,000 – 300,000)
PROBLEM 13.10
(a) Because the cause for litigation occurred before the date of the finan–
cial statements (that is, it is a present obligation as a result of past
events) and because it is probable that an outflow of resources will be
Note to the Financial Statements
Due to an accident which occurred during 2018, the Company is a
(b) Wong Airlines need not establish a liability for risk of loss from lack of
insurance coverage itself. IFRS does not require or allow the estab–
PROBLEM 13.11
(a)
1.
Loss from Uninsured Accident …………………………..
250,000
Liability for Uninsured Accident ……………………….
250,000
2.
Loss from Expropriation …………………………..
1,925,000
Allowance for Expropriation
3.
No entry required.
4.
Loss on Lease Contract …………………………..
Lease Contract Liability …………………………..
950,000
5.
No entry required.
(b)
1.
A loss and a liability have been recorded in the first case because
(i) the company has a present obligation as of the date of the
PROBLEM 13.11 (Continued)
2.
An entry to record a loss and establish an allowance due to threat
of expropriation is necessary because the expropriation is imminent
as evidenced by the foreign government’s communicated intent
to expropriate and the virtual certainty of a settlement from the
government. That is, enough evidence exists to reasonably estimate
PROBLEM 13.11 (Continued)
3.
Even though Polska’s chemical product division is uninsurable
due to high risk and has sustained repeated losses in the past, as
of the reporting date no assets have been impaired or liabilities
incurred nor is an amount reasonably estimable. Therefore, this
situation does not satisfy the criteria for recognition of a
4.
By moving to another factory, Polska has a lease contract with
unavoidable costs of meeting the obligations that exceed the
5.
Possible favorable outcomes from pending court cases are
considered contingent assets. Contingent assets are not
PROBLEM 13.12
(a)
Actual costs incurred …………………………………………………….
$94,000
Estimated costs at 12/31/19 ……………………………………………
20,000*
Total Expense ……………………………………………………………….
(b)
Estimated liability for warranties—1/1/19 ………………………..
$ 136,000
20,000
(c)
Coupons issued (1 coupon/$1 sale) ……………………………….
1,500,000
Estimated redemption rate …………………………………………….
.60
Estimated number of coupons to be redeemed ……………….
Exchange rate (200 coupons for a player) ……………………….
Estimated number of premium players
to be issued ……………………………………………………………….
(d)
Inventory of premium players—1/1/19 …………………………..
$ 37,600
Premium players purchased during 2019
(6,500 X $32) ………………………………………………………………
208,000
Premium players available …………………………………………….
Premium players exchanged for coupons
during 2019 (1,200,000/200 X $32) ………………………………..
192,000
(e)
54,000
Actual redemptions during 2019
PROBLEM 13.13
1. Memo prepared by:
Date:
Millay LTD
December 31, 2019
Recognition of Warranty Expense
During June of this year, the client began the manufacture and sale of a
new line of dishwasher. Sales of 120,000 dishwashers during this period
amounted to £60,000,000. These dishwashers were sold under a one-year
assurance warranty, and the client estimates warranty costs to be £25 per
appliance.
Millay must recognize warranty expense for both actual and expected
warranty costs in the year of sale. The client should have made the
following journal entries:
Cash ……………………………………………………….…. 60,000,000
Sales Revenue (120,000 X £500) ………….. 60,000,000
(To record sale of 120,000 dishwashers)
PROBLEM 13.13 (Continued)
2. Memo prepared by:
Date:
Millay LTD
December 31, 2019
Contingent Liability from Violation
Of EPA Regulations
I contacted the client’s counsel via a routine attorney letter, asking for
information about possible litigation in which the company might be
involved. Morgan Chye, Millay’s attorney, informed me about court action
taken against Millay for dumping toxic waste in the Loden River.
PROBLEM 13.13 (Continued)
3. Memo prepared by:
Date:
Millay LTD
December 31, 2019
Contingent Liability on
Patent Infringement Litigation
In answer to my attorney letter requesting information about any possible
litigation associated with the client, Morgan Chye informed me that the
client is in the middle of a patent infringement suit with Megan Drabek over
a hydraulic compressor used in several of Millay’s appliances. The loss of
PROBLEM 13.14
1. Estimated warranty costs:
On 2018 sales $ 800,000 X .10 …………………………..
$ 80,000
On 2019 sales $1,100,000 X .10 …………………………..
110,000
On 2020 sales $1,200,000 X .10 …………………………..
Total estimated costs …………………………………
310,000
Total warranty expenditures ……………………….
2.
Computation of liability for premium claims outstanding:
Unredeemed coupons for 2019
($9,000 – $8,000) ……………………………………………..
$ 1,000
($30,000 X .40) ………………………………………………..