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
=
Quick Assets
÷
Current Liabilities
=
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 6
Debit
Credit
Inventory
147,000
Accounts Payable
147,000
January 15
Debit
Credit
Sales Revenue
135,000
(Sell inventory on account)
Cost of Goods Sold
73,800
Inventory
(Record cost of inventory sold)
January 23
Debit
Credit
Cash
125,400
Accounts Receivable
125,400
(Receive cash on account)
January 25
Debit
Credit
Accounts Payable
90,000
(Pay cash on account)
January 28
Debit
Credit
Allowance for Uncollectible Accounts
Accounts Receivable
4,800
(Write off uncollectible accounts)
January 30
Debit
Credit
Cash
11,000
Accounts Receivable
132,000
Sales Revenue
143,000
(Sell inventory for cash and on account)
Inventory
January 31
Debit
Credit
Salaries Expense
52,000
Cash
(Pay monthly salaries)
Exercise 8-16 (continued)
Requirement 2 Adjusting entries at end of January, 2018
(a) January 31
Debit
Credit
Depreciation Expense
500
500
(b) January 31
Debit
Credit
Bad Debt Expense
12,500
12,500
(c) January 31
Debit
Credit
Interest Expense
250
250
(d) January 31
Debit
Credit
Income Tax Expense
13,000
(e) January 31
Debit
Credit
Deferred Revenue
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
Equipment
15,000
Allowance for Uncollectible Accounts
$ 11,900
Accumulated Depreciation
Accounts Payable
85,500
Deferred Revenue
Interest Payable
Income Tax Payable
13,000
Notes Payable
50,000
Common Stock
35,000
Retained Earnings
33,100
Sales Revenue
281,000
Cost of Goods Sold
153,300
Salaries Expense
52,000
Bad Debt Expense
12,500
Depreciation Expense
Interest Expense
Income Tax Expense
13,000
Totals
$516,750
$516,750
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
Inventory
=
20,000+147,000−73,800−79,500
Land
=
46,000
Equipment
=
Allow for Unc. Accounts
=
4,200−4,800+12,500
Accumulated Depreciation
=
1,500+500
Accounts Payable
=
28,500+147,000−90,000
Deferred Revenue
=
Interest Payable
=
Income Tax Payable
=
Notes Payable
=
50,000
Common Stock
=
Retained Earnings
=
Sales Revenue
281,000
=
Cost of Goods Sold
153,300
=
Salaries Expense
=
Bad Debt Expense
=
Depreciation Expense
=
Interest Expense
=
Income Tax Expense
=
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
Bad debt expense
Depreciation expense
Total operating expenses
Interest expense
Income tax expense
$ 49,450
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
Less: Allowance
(11,900)
Income tax payable
Inventory
Notes payable
Land
Equipment
Common stock
Less: Accumulated Depreciation
(2,000)
Retained earnings
*
Total assets
$271,300
$271,300
Exercise 8-16 (concluded)
Requirement 6
January 31, 2018
Debit
Credit
Sales Revenue
281,000
Retained Earnings
281,000
(Close revenue accounts)
Retained Earnings
231,550
Cost of Goods Sold
153,300
Salaries Expense
Bad Debt Expense
Depreciation Expense
Interest Expense
Income Tax Expense
(Close expense accounts)
Requirement 7
(a) The current ratio is:
Current Liabilities
$103,750
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
=
Current Assets
$212,300
=
1.38
Current Liabilities
$153,750
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__
_a__
4. Payment amount is probable and is reasonably
d. Disclosure of a
_b__
5. A liability that requires the sacrifice of
e. Interest on debt
_j__
6. Long-term debt maturing within one year.
f. Payroll taxes
_f__
7. FICA and FUTA.
g. Line of credit
_g__
8. Informal agreement that permits a company to
borrow up to a prearranged limit
h. Capital structure
_c__
9. Classifying liabilities as either current or long-
i. Notes payable
_e__
10. Amount of note payable x annual interest rate
x fraction of the year.
j. Current portion of
long-term debt
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
Notes Receivable
41,000,000
Cash
41,000,000
(Acceptance of notes receivable)
Requirement 2
(a). December 31, 2018
Interest Payable
(b). December 31, 2018
Requirement 3
(a) September 30, 2019
Notes Payable
41,000,000
Interest Expense ($41 million x 9% x 9/12)
(b). September 30, 2019
Cash
44,690,000
Problem 8-3A
Requirement 1
January 31
Salaries Expense
600,000
Income Tax Payable
60,000
FICA Tax Payable
Requirement 2
January 31
January 31
FICA Tax Payable
Unemployment Tax Payable
Problem 8-4A
Requirement 1
February 14
Salaries Expense
1,500,000
Income Tax Payable
375,000
FICA Tax Payable
114,750
947,250
Requirement 2
February 14
Requirement 3
February 14
Unemployment Tax Payable
Problem 8-5A
Requirement 1
$102,600,000
=
$900 per season ticket
114,000
Requirement 2
Cash
102,600,000
Deferred Revenue
Requirement 3
Deferred Revenue
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