Liabilities: Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid. To Identify: Whether the situation represents a contingent liability .

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Answer 1

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Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

4

To determine

To Identify: the balance in the warranty liability account.

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Students have asked these similar questions

12. Chato Company sells electrical goods covered by a one-year warranty for any defects. Of the sales of P70,000,000 for the year, the entity estimates that 3% will have major defect, 5% will have minor defect and 92% will have no defect. The cost of repairs would be P5,000,000 if all the products sold had major defect andP3,000,000 if all had minor defect. What amount should be recognized as a warranty provision? * a. 8,000,000 b. 5,600,000 c. 300,000 d. 190,000

Computer Wholesalers restores and resells notebook computers. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 6% of sales. Sales for the month of December are $600,000. Actual warranty expenditures in January of the following year were $13,000.Required:1. Does this situation represent a contingent liability? Why or why not?2. Record warranty expense and warranty liability for the month of December based on 6% of sales.3. Record the payment of the actual warranty expenditures of $13,000 in January of the following year. 4. What is the balance in the Warranty Liability account after the entries in requirements 2 and 3?

10. During 2011, Rex Company introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to peso sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales are P6,000,000for 2011 and P10,000,000 for 2012. Actual warranty expenditures are P90,000 for 2011 and P300,000 for 2012. On December 31, 2012, what is the estimated warranty liability? * a. 570,000 b. 100,000 c. 450,000 d. 0

Answer 2

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

4

To determine

To Identify: the balance in the warranty liability account.

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Answer 3

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

4

To determine

To Identify: the balance in the warranty liability account.

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Answer 4

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

4

To determine

To Identify: the balance in the warranty liability account.

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Answer 5

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

4

To determine

To Identify: the balance in the warranty liability account.

Answer 6

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

Answer 7

Chapter 8, Problem 8.13E

1

To determine

Liabilities:

Liabilities are an obligation of the business to pay to the creditors in future for the goods and services purchased on account or any for other financial benefit received. It can be current liabilities or a non-current liabilities depending upon the time period in which it is paid.

To Identify: Whether the situation represents a contingent liability.

Answer 8

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

Answer 9

2

To determine

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

Answer 10

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

Answer 11

3

To determine

To Record: the payment of the actual warranty expenditures of $13,000 in January.

Answer 12

4

To determine

To Identify: the balance in the warranty liability account.

Answer 13

4

To determine

To Identify: the balance in the warranty liability account.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 8 - Prob. 1RQ Ch. 8 - Prob. 2RQ Ch. 8 - Prob. 3RQ Ch. 8 - Provide examples of current liabilities in the...Ch. 8 - Prob. 5RQ Ch. 8 - Prob. 6RQ Ch. 8 - How does commercial paper differ from a normal...Ch. 8 - Prob. 8RQ Ch. 8 - Prob. 9RQ Ch. 8 - Prob. 10RQ

Solution Summary: The author identifies whether the situation represents a contingent liability because the cost for warranties that will be incurred are probable and based on their prior experience they are reasonably estimable.

To Record: the warranty expense and warranty liability for the month of December based on 6% of sales.

To Record: the payment of the actual warranty expenditures of $13,000 in January.

To Identify: the balance in the warranty liability account.

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Chapter 8 Solutions