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Question 28. Poar Corp. sells 1,000,000 tablet computers per year at a cost of $500.00 each. Every tablet is sold with a one-year warranty. Based on its past experionces, Poar Corp. believes that one percent (1%) of the tablets sold will result in a product warranty claim during the current fiscal year, at an average cost of $100.00. This contingent liability is probable and can be reasonably estimatod. Based on this information, what should Pear Corp. record as a joumal entry during the current fiscal year (Year 1") to recognize this loss contingency? Date Account Debit Credit (Year 1) Accounts Receivable $1,000,000.00 Purchase returns and allowances $1,000,000.00 Account (Year 1] Accrued Liability Payable (Warranty) $4,000,000.00 Warranty Expense Date Debit Credit $4,000,000.00 Date Ассount Debit Credit (Year I) Purchase returns and allowances $1,000,000.00 Accounts Receivable $1,000,000.00 D. Date Лесоunt Debit Credit (Year 1) Warranty Expense Accrued Liability Payable (Warranty) $1,000,000.00 $1,000,000.00 E Date Лесоunt Debit Credit (Year 1) Warranty Expense $4,000,000.00 Aeenied L iability Pavahle (Warranty) S4 000 000.00

Question 28. Poar Corp. sells 1,000,000 tablet computers per year at a cost of $500.00 each. Every tablet is sold with a one-year warranty. Based on its past experionces, Poar Corp. believes that one percent (1%) of the tablets sold will result in a product warranty claim during the current fiscal year, at an average cost of $100.00. This contingent liability is probable and can be reasonably estimatod. Based on this information, what should Pear Corp. record as a joumal entry during the current fiscal year (Year 1") to recognize this loss contingency? Date Account Debit Credit (Year 1) Accounts Receivable $1,000,000.00 Purchase returns and allowances $1,000,000.00 Account (Year 1] Accrued Liability Payable (Warranty) $4,000,000.00 Warranty Expense Date Debit Credit $4,000,000.00 Date Ассount Debit Credit (Year I) Purchase returns and allowances $1,000,000.00 Accounts Receivable $1,000,000.00 D. Date Лесоunt Debit Credit (Year 1) Warranty Expense Accrued Liability Payable (Warranty) $1,000,000.00 $1,000,000.00 E Date Лесоunt Debit Credit (Year 1) Warranty Expense $4,000,000.00 Aeenied L iability Pavahle (Warranty) S4 000 000.00

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter2: Job Order Costing
Section: Chapter Questions
Problem 1TIF: Ethics in Action TAC Industries Inc. sells heavy equipment to large corporations and federal, state,...
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Question 28. Pear Corp. sells 1,000,000 tablet computers per year at a cost of $500.00 each. Every tablet is sold with a one-year warranty. Based on its past experiences, Pear Corp. believes that one percent (1%) of the tablets sold will result in a product warranty claim during the current fiscal year, at an average cost of $100.00. This contingent liability is probable and can be reasonably estimated. Based on this information, what should Pear Corp. record as a joumal entry during the current fiscal year ("Year 1") to recognize this loss contingency? Date Account Credit Debit (Year 1] Accounts Receivable $1,000,000.00 Purchase returns and allowances $1,000,000.00 B Date Account Debit Credit (Year 1] Accrued Liability Payable (Warranty) $4,000,000.00 Warranty Expense $4,000,000.00 Date Account Debit Credit [Year 1] Purchase returns and allowances S1,000,000.00 Accounts Receivable $1,000,000.00 Date Account Debit Credit [Year 1) Warranty Expense $1,000,000.00 Accrued Liability Payable (Warranty) S1,000,000.00 E Date Ассount Debit Credit [Year 1] Warranty Expense $4,000,000.00 Accrued Liability Payable (Warranty) $4,000,000.00
Transcribed Image Text:Question 28. Pear Corp. sells 1,000,000 tablet computers per year at a cost of $500.00 each. Every tablet is sold with a one-year warranty. Based on its past experiences, Pear Corp. believes that one percent (1%) of the tablets sold will result in a product warranty claim during the current fiscal year, at an average cost of $100.00. This contingent liability is probable and can be reasonably estimated. Based on this information, what should Pear Corp. record as a joumal entry during the current fiscal year ("Year 1") to recognize this loss contingency? Date Account Credit Debit (Year 1] Accounts Receivable $1,000,000.00 Purchase returns and allowances $1,000,000.00 B Date Account Debit Credit (Year 1] Accrued Liability Payable (Warranty) $4,000,000.00 Warranty Expense $4,000,000.00 Date Account Debit Credit [Year 1] Purchase returns and allowances S1,000,000.00 Accounts Receivable $1,000,000.00 Date Account Debit Credit [Year 1) Warranty Expense $1,000,000.00 Accrued Liability Payable (Warranty) S1,000,000.00 E Date Ассount Debit Credit [Year 1] Warranty Expense $4,000,000.00 Accrued Liability Payable (Warranty) $4,000,000.00
Question 29. Widgets Depot, Inc. Is a publicly traded company that is engaged in a manufacturing business. Included among Widgets Depot's assels are those that are tangible (such as manufacturing equipment, vehicles, and warehouses) and intangiblo (such as palents). Widget Depot purchases raw matorials in bulk, which it uses in the production of its goods. Widgets Depot expects that, for the current fiscal year (which just bogan for the company), It will probably recognize the following (which are all reasonable estimates) $70,000.00 as a depreciation expense for certain tangible assets that it owns; $6,000.00 as an amortization expense for Widget Depot's patents, $9,000.00 for damaged raw materials that Widget Depot bought and will return; And a $300,000.00 net gain from an infringement action that Widget Depot brought against a competitor, which is expected to be decided in the coming months. Using those amounts from the above that meet the definition of a contingency (under Accounting Standards Codification 450 (ASC 450), what is the total (or nat) gain or loss that may result from Widgets Depot, Inc.'s contingencies? (A) $385,000.00 (B) 5300,000.00 (C) $76,000.00 (D) $215,000.00 Question 30, Big Lender Corp. ("BLC") was notified some time ago that consumers are coordinating to bring a class action lawsuit against the company for allegedly violating the Truth in Lending Act ("TILA"). BLC did not complete its financial statements before it learned of the potential lawsuit. While a complaint has not been filed yet, BLC's analysis found the following: (1) igation of this matter is highty likely: (2) if a claim is brought, the outcome will probably be unfavorable to BLC; and (3) BLČS actions at issue here were known before the financial statements were completed. While BLC cannot reasonably estimate the potential loss, the number of consumers affected means that an unfavorable litigation result would yield a material loss to BLC. Which of the following accurately reflects how BLC should proceed as it completes its financial statements? (A) BLC should recognize a loss, accrued using the company's reasonable estimate, but it cannot include additional disclosure in the financial statement footnotes. (B) BLC must disclose the potential loss-and the disclosure needs to include a range of reasonable estimate values for that loss-but BLC has the option to accrue the loss or not. (C) BLC should neither disclose nor acorue the ligation loss contingency. (D) BLC should include a disclosure in the financial statement footnoles regarding the potential loss contingency, noting that a reasonable ostimate of the loss is not yet feasible. (E) BLC should Include disclosure in the financial statement footnotes regarding the polential loss contingency and must recognize the amount accrued for the loss if it does so.
Transcribed Image Text:Question 29. Widgets Depot, Inc. Is a publicly traded company that is engaged in a manufacturing business. Included among Widgets Depot's assels are those that are tangible (such as manufacturing equipment, vehicles, and warehouses) and intangiblo (such as palents). Widget Depot purchases raw matorials in bulk, which it uses in the production of its goods. Widgets Depot expects that, for the current fiscal year (which just bogan for the company), It will probably recognize the following (which are all reasonable estimates) $70,000.00 as a depreciation expense for certain tangible assets that it owns; $6,000.00 as an amortization expense for Widget Depot's patents, $9,000.00 for damaged raw materials that Widget Depot bought and will return; And a $300,000.00 net gain from an infringement action that Widget Depot brought against a competitor, which is expected to be decided in the coming months. Using those amounts from the above that meet the definition of a contingency (under Accounting Standards Codification 450 (ASC 450), what is the total (or nat) gain or loss that may result from Widgets Depot, Inc.'s contingencies? (A) $385,000.00 (B) 5300,000.00 (C) $76,000.00 (D) $215,000.00 Question 30, Big Lender Corp. ("BLC") was notified some time ago that consumers are coordinating to bring a class action lawsuit against the company for allegedly violating the Truth in Lending Act ("TILA"). BLC did not complete its financial statements before it learned of the potential lawsuit. While a complaint has not been filed yet, BLC's analysis found the following: (1) igation of this matter is highty likely: (2) if a claim is brought, the outcome will probably be unfavorable to BLC; and (3) BLČS actions at issue here were known before the financial statements were completed. While BLC cannot reasonably estimate the potential loss, the number of consumers affected means that an unfavorable litigation result would yield a material loss to BLC. Which of the following accurately reflects how BLC should proceed as it completes its financial statements? (A) BLC should recognize a loss, accrued using the company's reasonable estimate, but it cannot include additional disclosure in the financial statement footnotes. (B) BLC must disclose the potential loss-and the disclosure needs to include a range of reasonable estimate values for that loss-but BLC has the option to accrue the loss or not. (C) BLC should neither disclose nor acorue the ligation loss contingency. (D) BLC should include a disclosure in the financial statement footnoles regarding the potential loss contingency, noting that a reasonable ostimate of the loss is not yet feasible. (E) BLC should Include disclosure in the financial statement footnotes regarding the polential loss contingency and must recognize the amount accrued for the loss if it does so.
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