Answer 1-a
General Journal |
Event | Particulars | Debit | Credit |
1 | Warranty expense (2500000 * 4%) - 40000 | 60000 | |
Estimated warranty liability | 60000 | ||
2 | Bad debt expense (2500000 * 3%) | 75000 | |
Allowance for uncollectible accounts | 75000 | ||
3 | Loss litigation | 200000 | |
Liability-litigation | 200000 | ||
4 | No journal entry required | ||
5 | Loss-product recall | 550000 | |
Liability-product recall | 550000 | ||
6 | Promotional expense (65% * 20 * 10500) - 110000 | 26500 | |
Estimated premium liability | 26500 |
Answer 1-b
Event 1 | No | It is a warranty expense |
Event 2 | No | It is a bad debt expense |
Event 3 | Yes | It is a loss contingency. The appropriate disclosure is required including information occuring after the end of the year and before the financial statements are issued |
Event 4 | Yes | It is gain contingency. Gain is recognized when it is actually received. Thus a closure is required |
Event 5 | Yes | It is a loss liability |
Event 6 | No | It is promotional expense |
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Chapter 13 i Seved B The following selected transactions relate to contingencies of Classical Tool Makers,...
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