Accounting Chapter 13 Homework Problem 131 Requirement Schilling Motors Cash

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subject Authors David Spiceland, James Sepe, Mark Nelson, Wayne Thomas

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Alternate Exercises and Problems 131
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
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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
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Alternate Exercises and Problems 133
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
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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 135
PROBLEMS
Problem 13-1
Requirement 1
Schilling Motors
Cash ........................................................................ 42,000,000
Requirement 2
Adjusting entries (December 31, 2016)
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136 Intermediate Accounting, 8/e
Problem 13-1 (concluded)
Requirement 3
Issuance of note (November 1, 2016)
Cash (difference) ......................................................... 39,900,000
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Alternate Exercises and Problems 137
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
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138 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.
_______________________________
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

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