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

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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Students have asked these similar questions

A company 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, the company expects warranty costs to be approximately 5% of sales. Sales for the month of December are $530,000. Actual warranty expenditures in January of the following year were $19,500.

Warranty4U provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for three years. During the current year, Warranty4U provided 2,000 such warranty contracts at an average price of $30 each Related to these contracts, the company spent $15,000 servicing the contracts during the current year and expects to spend $10,000 more in the future What is the net protit that the company will recognize in the current year related to these contracts $25,000 O $10,000 D $5,000 O No Answer is Correct O

Gen sells cellular phones. Each phone sells for P10,000 and carries a warranty against defects of period of 1 year counting from the date of purchase. The firm sold 60,000 phones in 2019. Past experience indicates that 10% of the phones will need some type of repair during the warranty period. In the past, the firm has incurred expenditures at P400 on each telephone needing repair due to manufacturing defects. At the beginning of the year, the Estimate Liability for Warranties account had a credit of P59,400. Actual expenditures during the year amounted to P1.5M. The balance of the Estimated Liability for Warranties at year-end is: O 500,000 O 2,400,000 O 1,500,000 0 950,000

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