Question
In: Accounting
The following three independent sets of facts relate to (1) the possible accrual or (2) the...
The following three independent sets of facts relate to (1) the possible accrual or (2) the possible disclosure by other means of a loss contingency.
Situation I
A company offers a 1-year assurance-type warranty for the product that it manufactures. A history of warranty claims has been compiled and the probable amount of claims related to sales for a given period can be determined.
Situation II
Subsequent to the date of a set of financial statements, but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated.
Situation III
A company has adopted a policy of recording self-insurance for any possible losses resulting from injury to others by the company's vehicles. The premium for an insurance policy for the same risk from an independent insurance company would have an annual cost of $2,000. During the period covered by the financial statements, there were no accidents involving the company's vehicles that resulted in injury to others.
Required:
Choose a Situation and explain the accrual and/or type of
disclosure necessary (if any) and the reason(s) why such disclosure
is appropriate.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
The following three independent sets of facts relate to (1) the possible accrual or (2) the...
The following three independent sets of facts relate
to (1) the possible accrual or (2) the possible disclosure by other
means of a loss contingency.
Situation I
A company offers a 1-year assurance-type warranty for
the product that it manufactures. A history of warranty claims has
been compiled and the probable amount of claims related to sales
for a given period can be determined.
Situation II
Subsequent to the date of a set of financial
statements, but prior to the...
The following three independent sets of facts relate to (1) the possible accrual or (2) the...
The following three independent sets of facts relate
to (1) the possible accrual or (2) the possible disclosure by other
means of a loss contingency.
Situation I
A company offers a 1-year assurance-type warranty for
the product that it manufactures. A history of warranty claims has
been compiled and the probable amount of claims related to sales
for a given period can be determined.
Situation II
Subsequent to the date of a set of financial
statements, but prior to the...
11‐10 Reporting Contingencies The following three independent sets of facts relate to (1) the possible accrual...
11‐10 Reporting Contingencies
The following three independent sets of facts relate to (1) the
possible accrual or (2) the possible disclosure by other means of a
loss contingency.
Situation 1
A company offers a one‐way warranty for the product that it
manufactures. A history of warranty claims has been compiled, and
the probable amount of claims related to sales for a given period
can be determined.
Situation 2
Following the date of a set of financial statements, but before
the...
The following three independent sets of facts relate to contingent liabilities: 1. In November of the...
The following three independent sets of facts relate to
contingent liabilities:
1. In November of the current year, an automobile manufacturing
company recalled all pickup trucks manufactured during the past two
years. A flaw in the battery cable was discovered and the recall
provides for replacement of the defective cables. The estimated
cost of this recall is $3.5 million.
2. The EPA has notified a company of violations of environmental
laws relating to hazardous waste. These actions seek cleanup costs,...
The following are three independent, unrelated sets of facts relating to accounting changes. Situation 1: Sanford...
The following are three independent, unrelated sets of facts
relating to accounting changes.
Situation 1: Sanford Company is in the process
of having its first audit. The company has used the cash basis of
accounting for revenue recognition. Sanford president, B. J.
Jimenez, is willing to change to the accrual method of revenue
recognition.
Situation 2: Hopkins Co. decides in January
2018 to change from FIFO to weighted-average pricing for its
inventories.
Situation 3: Marshall Co. determined that the
depreciable...
The following facts relate to Sunland Corporation. 1. Deferred tax liability, January 1, 2020, $33,900. 2....
The following facts relate to Sunland Corporation.
1.
Deferred tax liability, January 1, 2020, $33,900.
2.
Deferred tax asset, January 1, 2020, $11,300.
3.
Taxable income for 2020, $118,650.
4.
Cumulative temporary difference at December 31, 2020, giving
rise to future taxable amounts, $259,900.
5.
Cumulative temporary difference at December 31, 2020, giving
rise to future deductible amounts, $107,350.
6.
Tax rate for all years, 20%. No permanent differences
exist.
7.
The company is expected to operate profitably in the...
The following facts relate to Novak Corporation. 1. Deferred tax liability, January 1, 2020, $24,400. 2....
The following facts relate to Novak Corporation.
1.
Deferred tax liability, January 1, 2020, $24,400.
2.
Deferred tax asset, January 1, 2020, $0.
3.
Taxable income for 2020, $115,900.
4.
Pretax financial income for 2020, $244,000.
5.
Cumulative temporary difference at December 31, 2020, giving
rise to future taxable amounts, $292,800.
6.
Cumulative temporary difference at December 31, 2020, giving
rise to future deductible amounts, $42,700.
7.
Tax rate for all years, 20%.
8.
The company is expected to operate...
The following facts relate to Headland Corporation. 1. Deferred tax liability, January 1, 2020, $44,800. 2....
The following facts relate to Headland Corporation.
1.
Deferred tax liability, January 1, 2020, $44,800.
2.
Deferred tax asset, January 1, 2020, $0.
3.
Taxable income for 2020, $106,400.
4.
Pretax financial income for 2020, $112,000.
5.
Cumulative temporary difference at December 31, 2020, giving
rise to future taxable amounts, $268,800.
6.
Cumulative temporary difference at December 31, 2020, giving
rise to future deductible amounts, $39,200.
7.
Tax rate for all years, 20%.
8.
The company is expected to operate...
The following facts relate to Oriole Corporation. 1. Deferred tax liability, January 1, 2020, $36,000. 2....
The following facts relate to Oriole Corporation.
1.
Deferred tax liability, January 1, 2020, $36,000.
2.
Deferred tax asset, January 1, 2020, $12,000.
3.
Taxable income for 2020, $126,000.
4.
Cumulative temporary difference at December 31, 2020, giving
rise to future taxable amounts, $276,000.
5.
Cumulative temporary difference at December 31, 2020, giving
rise to future deductible amounts, $114,000.
6.
Tax rate for all years, 20%. No permanent differences
exist.
7.
The company is expected to operate profitably in the...
The following facts relate to Kingbird Corporation. 1. Deferred tax liability, January 1, 2017, $66,600. 2....
The following facts relate to Kingbird Corporation.
1. Deferred tax liability, January 1, 2017, $66,600.
2. Deferred tax asset, January 1, 2017, $22,200.
3. Taxable income for 2017, $116,550.
4. Cumulative temporary difference at December 31, 2017, giving
rise to future taxable amounts, $255,300.
5. Cumulative temporary difference at December 31, 2017, giving
rise to future deductible amounts, $105,450.
6. Tax rate for all years, 40%. No permanent differences
exist.
7. The company is expected to operate profitably in the...
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