Analyzing and Determining the Amount of a Liability For each of the following situations, indicate the...

Analyzing and Determining the Amount of a Liability

For each of the following situations, indicate the liability amount, if any, which is reported on the balance sheet of Hirst, Inc., at December 31, 2018.

a. Hirst owes $110,000 at year-end 2018 for its inventory purchases.
b. Hirst agreed to purchase a $28,000 drill press in January 2019.
c. During November and December of 2018, Hirst sold products to a firm with a 90-day warranty
against product failure. Estimated 2019 costs of honoring this warranty are $2,200.
d. Hirst provides a profit-sharing bonus for its executives equal to 5% of its reported pretax annual income.
The estimated pretax income for 2018 is $600,000. Bonuses are not paid until January of the following year.

Subject: Financial Accounting

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Expert Solution

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		Amount to be reported
a	Hirst owes $110,000 at year-end 2018 for its inventory purchases.	$110,000	[ Is reported as current liability since the same against purchase of inventory]
b	Hirst agreed to purchase a $28,000 drill press in January 2019.	0	[No liability is reported since the company did not receive the machine or has paid any amount for the purchase]
c	During November and December of 2018, Hirst sold products to a firm with a 90-day warranty against product failure. Estimated 2019 costs of honoring this warranty are $2,200.	2200	[ This the warranty expense expected to be incurred next year hence is a current liability]
d	Hirst provides a profit-sharing bonus for its executives equal to 5% of its reported pretax annual income. The estimated pretax income for 2018 is $600,000. Bonuses are not paid until January of the following year.	30000	[ Current liability of unpaid bonus = 600,000*5%= 30,000]

ekkarill92 answered 1 year ago

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