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Exercise 8-13
Requirement 1
The contingent liability is probable and reasonably estimable, so it must be recorded
as follows:
Loss 1,300,000
Requirement 2
Pacific Cruise Lines should record a loss and a liability for the minimum amount ($1.1
Loss 1,100,000
Contingent Liability 1,100,000
(Record the contingent liability)
Requirement 3
If the likelihood of loss is reasonably possible rather than probable, we record no entry
Requirement 4
If the likelihood of loss is remote, disclosure is usually not required.
8-22 Financial Accounting, 5e
Exercise 8-14
Requirement 1
Yes, it’s probable that costs for warranties will be incurred and based on previous
experience the amount is reasonably estimable.
Requirement 2
December 31
Requirement 3
January 31
Requirement 4
Warranty Liability
Exercise 8-15
Requirement 1
December 31, 2021
Requirement 2
Summary entry in 2022
Requirement 3
December 31, 2022
Warranty Expense 29,000
Requirement 4
Warranty Liability
0
32,000 Adjusting entry
Exercise 8-16
Requirement 1
Yes, a contingent liability is an existing, uncertain situation that might result in a loss.
Requirement 2
Dow would record a contingency if the loss is probable and is reasonably estimable.
Requirement 3
Loss 381,000,000
Exercise 8-17
Requirement 1
Current Assets
÷
Current Liabilities
=
Current Ratio
$875
÷
$2,638
=
0.33
Requirement 2
Queen’s Line has a lower current ratio and a lower acid-test ratio than either United
8-26 Financial Accounting, 5e
Exercise 8-18
Requirement 1 Transactions during January, 2021
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
Accounts Payable
90,000
Cash
90,000
(Pay cash on account)
January 31
Debit
Credit
Salaries Expense
52,000
Cash
52,000
(Pay monthly salaries)
Exercise 8-18 (continued)
Requirement 2 Adjusting entries at end of January, 2021
(a) January 31
Debit
Credit
Depreciation Expense
500
Accumulated Depreciation
500
(Record depreciation for January)
($500 = [$15,000−$3,000] / 24 months)
(c) January 31
Debit
Credit
Interest Expense
250
Interest Payable
250
(Adjust interest expense)
($250 = $50,000 × 6% × 1/12)
Exercise 8-18 (continued)
Requirement 3
ACME Fireworks
Adjusted Trial Balance
January 31, 2021
Accounts
Debit
Credit
Cash
$ 27,500
Accounts Receivable
183,000
Inventory
13,700
Land
46,000
Common Stock
35,000
Retained Earnings
33,100
Sales Revenue
281,000
Cost of Goods Sold
153,300
Salaries Expense
52,000
Exercise 8-18 (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
13,700
=
20,000+147,000−73,800−79,500
Land
46,000
=
46,000
Equipment
15,000
=
15,000
8-30 Financial Accounting, 5e
Exercise 8-18 (continued)
Requirement 4
ACME Fireworks
Multiple-Step Income Statement
For the year ended January 31, 2021
Sales revenue
$281,000
Cost of goods sold
153,300
Gross profit
$127,700
Requirement 5
ACME Fireworks
Classified Balance Sheet
January 31, 2021
Assets
Liabilities
Accounts payable
$ 85,500
Cash
$ 27,500
Deferred revenue
5,000
Accounts receivable
183,000
Interest payable
250
Less: Allowance
(11,900)
171,100
Income tax payable
13,000
Exercise 8-18 (concluded)
Requirement 6
January 31, 2021
Debit
Credit
Sales Revenue
281,000
Retained Earnings
281,000
Requirement 7
(a) The current ratio is:
(b) The acid-test ratio is:
(c) The current ratio, assuming the notes payable are current liabilities, is:
Assuming the notes payable were due on April 1, 2021, they would be included in total current
PROBLEMS: SET A
Problem 8-1A
List A
List B
_i__
1. An IOU promising 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
8-34 Financial Accounting, 5e
Problem 8-2A
Requirement 1
(a). October 1, 2021
Requirement 2
(a). December 31, 2021
Interest Expense ($41 million × 9% × 3/12)
922,500
Interest Payable
922,500
(Interest expense incurred, but not paid)
Requirement 3
(a) September 30, 2022
Notes Payable
41,000,000
(Payment of notes payable and interest)
(b). September 30, 2022
Cash
44,690,000
8-36 Financial Accounting, 5e
Problem 8-3A
Requirement 1
January 31
Salaries Expense
600,000
Requirement 2
January 31
Salaries Expense (fringe benefits)
34,800
Requirement 3
January 31
Payroll Tax Expense (total)
83,100
Problem 8-4A
Requirement 1
February 14
Salaries Expense
1,500,000
Requirement 2
February 14
Salaries Expense (fringe benefits)
100,500
Requirement 3
February 14
Payroll Tax Expense (total)
207,750
Problem 8-5A
Requirement 1
$102,600,000
Requirement 2
Cash
102,600,000
Requirement 3
Deferred Revenue
17,100,000
Problem 8-6A
Requirement 1
Cash
3,500
Deferred Revenue
3,500
(Sale of gift cards)
Requirement 2
Deferred Revenue
728
8-40 Financial Accounting, 5e
Problem 8-7A
Requirement 1
The likelihood of loss is reasonably possible rather than probable, so no journal entry
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
