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Exercise 8-13
Requirement 1
Requirement 2
December 31
Requirement 3
January 31
Requirement 4
Warranty Liability
Exercise 8-14
Requirement 1
Yes, a contingent liability is an existing, uncertain situation that might result in a loss.
Requirement 2
Requirement 3
Exercise 8-15
Requirement 1
Current Assets
÷
Current Liabilities
=
Current Ratio
Quick Assets
÷
Current Liabilities
=
Acid-Test Ratio
Requirement 2
Queen’s Line has a lower current ratio and a lower acid-test ratio than either United
Exercise 8-16
Requirement 1 Transactions during January, 2018
January 2
Debit
Credit
Cash
8,000
Deferred Revenue
8,000
(Sell gift cards for cash)
January 23
Debit
Credit
Cash
125,400
Accounts Receivable
125,400
(Receive cash on account)
January 25
Debit
Credit
January 30
Debit
Credit
Cash
11,000
Accounts Receivable
132,000
Sales Revenue
143,000
Exercise 8-16 (continued)
Requirement 2 Adjusting entries at end of January, 2018
(a) January 31
Debit
Credit
Depreciation Expense
500
(b) January 31
Debit
Credit
Bad Debt Expense
12,500
(c) January 31
Debit
Credit
Interest Expense
250
(d) January 31
Debit
Credit
Income Tax Expense
13,000
(e) January 31
Debit
Credit
Exercise 8-16 (continued)
Requirement 3
ACME Fireworks
Adjusted Trial Balance
January 31, 2018
Accounts
Debit
Credit
Cash
$ 27,500
Accounts Receivable
183,000
Inventory
13,700
Land
46,000
Exercise 8-16 (continued)
Requirement 3 (concluded)
Accounts
Ending
Balance
Beginning balance in bold, entries during January in blue,
and adjusting entries in red.
Cash
$ 27,500
=
25,100+8,000+125,400−90,000+11,000−52,000
Accounts Receivable
183,000
=
46,200+135,000−125,400−4,800+132,000
Exercise 8-16 (continued)
Requirement 4
ACME Fireworks
Multiple-Step Income Statement
For the year ended January 31, 2018
Sales revenue
$281,000
Cost of goods sold
153,300
Gross profit
$127,700
Requirement 5
ACME Fireworks
Classified Balance Sheet
January 31, 2018
Assets
Liabilities
Accounts payable
$ 85,500
Cash
$ 27,500
Deferred revenue
5,000
Accounts receivable
183,000
Interest payable
250
Exercise 8-16 (concluded)
Requirement 6
January 31, 2018
Debit
Credit
Sales Revenue
281,000
Retained Earnings
281,000
(Close revenue accounts)
Requirement 7
(a) The current ratio is:
Current Assets
$212,300
(b) The acid-test ratio is:
Acid-Test Ratio
=
Quick Assets*
=
$27,500 + $0 + $171,100
=
1.91
Current Liabilities
$103,750
PROBLEMS: SET A
Problem 8-1A
List A
List B
_i__
1. A promise to repay the amount borrowed plus
interest.
a. Recording of a
contingent liability
_d__
2. Payment amount is reasonably possible and is
b. Deferred revenue
Problem 8-2A
Requirement 1
(a). October 1, 2018
Cash
41,000,000
Notes Payable
41,000,000
(Issuance of notes payable)
(b). October 1, 2018
Requirement 2
(a). December 31, 2018
Requirement 3
(a) September 30, 2019
Notes Payable
41,000,000
Problem 8-3A
Requirement 1
January 31
Salaries Expense
600,000
Income Tax Payable
60,000
Requirement 2
January 31
Problem 8-4A
Requirement 1
February 14
Salaries Expense
1,500,000
Income Tax Payable
375,000
Requirement 2
Requirement 3
Problem 8-5A
Requirement 1
$102,600,000
=
$900 per season ticket
114,000
Requirement 2
Requirement 3
Problem 8-6A
Requirement 2
Problem 8-7A
Requirement 1
Requirement 2
Environmental Printing has a contingent gain that is probable, and is reasonably
Requirement 3
Environmental Printing should record a loss and a liability for the minimum amount
($500,000) and disclose the range between $500,000 and $900,000 in the notes to the
financial statements. The entry is as follows:
Problem 8-8A
Requirement 1
The reporting for this situation depends on the likelihood of loss occurring. If the
likelihood of loss is reasonably possible rather than probable, no journal entry is
recorded. However, if the likelihood of loss is probable, the following entry would be
recorded:
Requirement 2
The contingent loss is probable and reasonably estimable, so it would be recorded as
follows:
Requirement 3
Dinoco has a contingent gain that is probable, and is reasonably estimable at $150
Problem 8-9A
Requirement 1
($ in millions)
Total
Current
Assets
÷
Total
Current
Liabilities
=
Current
Ratio
Requirement 2
($ in millions)
Quick
Assets
÷
Total
Current
Liabilities
=
Acid-Test
Ratio
Requirement 3
The purchase of additional inventory on credit would increase current assets
(inventory) and current liabilities (accounts payable) by the same amount. This
