Exercise 13–8
Requirement 1
Cash …………………………………………………………….. 7,500
13–22 Intermediate Accounting, 8/e
Exercise 13–9
Requirement 1
Requirement 2
January Gift Card Sales
Requirement 3
Of the $16,000 sold in March, : $4,000 will be recognized as revenue
Requirement 4
Exercise 13–10
The FASB Accounting Standards Codification represents the single source of
authoritative U.S. generally accepted accounting principles. The specific citation
for each of the following items is:
1. If it is only reasonably possible that a contingent loss will occur, the
2. Criteria allowing short-term liabilities expected to be refinanced to be
3. Accounting for separately priced extended warranty contracts:
4. The criteria to determine if an employer must accrue a liability for
13–24 Intermediate Accounting, 8/e
Exercise 13–11
Exercise 13–12
Requirement 1
Normally, IFRS requires that short-term debt (payable within a year) be
Exercise 13–13
1. Current liability: $10 million
2. Noncurrent liability: $14 million
3. Current liability: $7 million
13–26 Intermediate Accounting, 8/e
Exercise 13–14
Requirement 1
Requirement 2
Specifically, the guidelines are that an estimated loss from a loss contingency be
accrued by a charge to income if both of the following conditions are met:
Exercise 13–15
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
Accounts receivable …………………………………….. 5,000,000
Requirement 3
Warranty Liability
_________________________________________
13–28 Intermediate Accounting, 8/e
Exercise 13–16
Requirement 1
This is not a loss contingency. An extended warranty is priced and sold
Requirement 2
During the year
Accounts receivable ………………………………………. 412,000
Exercise 13–16 (concluded)
Note: Students may be tempted to solve this exercise by believing that January
sales produce 9 months of extended warranty revenue, February sales produce
Exercise 13–17
Requirement 1
This is a loss contingency. A liability is accrued if it is both probable that the
confirming event will occur and the amount can be at least reasonably estimated.
Requirement 2
Requirement 3
Requirement 4
Exercise 13–18
Requirement 1
This is a loss contingency. Some loss contingencies don’t involve liabilities at
Requirement 2
Requirement 3
Requirement 4
Allowance for uncollectible accounts:
Beginning of 2016 $75,000
13–32 Intermediate Accounting, 8/e
Exercise 13–19
Scenario 1
Scenario 2
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
Scenario 4
Accrual of the loss is required because an FDA claim is as yet unasserted, but
Exercise 13–20
Requirement 1
Requirement 2
Requirement 3
This is a loss contingency. Classical can use the information occurring
Requirement 4
Requirement 5
Requirement 6
Exercise 13–21
Requirement 1
Erismus would not recognize a liability, as U.S. GAAP defines
Requirement 2
Requirement 3
Requirement 4
Exercise 13–22
Requirement 1
Erismus would recognize a liability of $1,000,000, as IFRS defines
“probable” as “more likely than not” (> 50%), and it is more likely than not
to lose in court.
Requirement 2
Requirement 3
Erismus would recognize a liability of $3,500,000, as it is more likely
Requirement 4
13–36 Intermediate Accounting, 8/e
Exercise 13–23
Item Reporting Method
__C_ 1. Commercial paper. N. Not reported
Exercise 13–24
Requirement 1
Accrued liability and expense
Warranty expense (3% x $3,600,000) ……………………………………….. 108,000
Requirement 2
Actual expenditures (summary entry)
Exercise 13–25
1. This is a change in estimate.
13–38 Intermediate Accounting, 8/e
Exercise 13–26
The note describes a loss contingency. Dow anticipates a future sacrifice of
economic benefits (cost of remediation and restoration) due to an existing
circumstance (environmental violations) that depends on an uncertain future event
(requirement to pay claim).
Exercise 13–27
Salaries and wages expense (total amount earned) ….. 500,000
Withholding taxes payable (federal income tax) …. 100,000
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. d. The accrued interest at end of the first year, February 28, 2016, is $1,200
($10,000 x 12% = $1,200). The interest for the remaining ten months is
2. a. The liability for compensated absences at December 31, 2016, is
$15,000 for the 150 vacation days times $100 per day. The key word in
3. a. The amount excluded from current liabilities through refinancing cannot
exceed the amount actually refinanced. Therefore, Largo should
4. a. Gain contingencies should not be recognized in the financial statements
until realized. Adequate disclosure should be made in the notes but care
13–40 Intermediate Accounting, 8/e
CPA Exam Questions (concluded)
5. c. For an extended warranty, revenue is deferred upon initial sale and then
6. d.
2016 and 2017 sales = $ 400,000