Accounting Chapter 13 Homework Problem 131 Requirement Schilling Motors Cash

Alternate Exercises and Problems 13–1

Chapter 13 Current Liabilities and Contingencies

EXERCISES

Exercise 13-1

Requirement 1

Requirement 2

Requirement 3

Exercise 13-2

1. Interest rate Fiscal year-end

13% December 31

Exercise 13-3

2016

Jan. 22 No entry is made for a line of credit until a loan actually is made. It

would be described in a disclosure note.

Mar. 1

Alternate Exercises and Problems 13–3

Exercise 13-3 (concluded)

2017

Exercise 13-4

1. Noncurrent liability: $22 million

The current liability classification includes (a) situations in which the creditor

2. Current liability: $9 million

3. Current liability: $15 million

Exercise 13-5

Requirement 1

This is a loss contingency. There may be a future sacrifice of economic

benefits (cost of satisfying the warranty) due to an existing circumstance (the

Requirement 2

2016 Sales

Requirement 3

Warranty Liability

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Alternate Exercises and Problems 13–5

PROBLEMS

Problem 13-1

Requirement 1

Schilling Motors

Cash ……………………………………………………………… 42,000,000

Requirement 2

Adjusting entries (December 31, 2016)

13–6 Intermediate Accounting, 8/e

Problem 13-1 (concluded)

Requirement 3

Issuance of note (November 1, 2016)

Cash (difference) ………………………………………………… 39,900,000

Alternate Exercises and Problems 13–7

Problem 13-2

1. This is a loss contingency. Finley can use the information occurring after the end

of the year in determining appropriate disclosure. It is unlikely that Finley would

choose to accrue the $36 million loss because the judgment will be appealed and

that outcome is uncertain. A disclosure note is appropriate:

2. No disclosure is required because an EPA claim is as yet unasserted, and an

13–8 Intermediate Accounting, 8/e

Problem 13-2 (concluded)

3. 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.

Though gain contingencies are not recorded in the accounts, they should be

disclosed in notes to the financial statements.

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Note X: Contingency

Finley is the plaintiff in a pending lawsuit filed against AA Asphalt for damages

4. This is a loss contingency. Finley can use the information occurring after the end

of the year in determining appropriate disclosure. Finley should accrue the $55

million loss because the ultimate outcome appears settled and the loss is probable.

Loss – litigation ……………………………………. 55,000,000