CHAPTER 13

Current Liabilities and Contingencies

SOLUTIONS TO BRIE E!ERCISES
BRIE E!ERCISE 13"1#
$a% La&suit Loss '##(###
La&suit Liabilit) '##(###
$b% No entr) is necessar)* T+e loss is not accrued because it is not ,rob
able t+at a liabilit) +as been incurred at 1-.31.1-*
BRIE E!ERCISE 13"11
Buc+anan s+ould record a litigation accrual on t+e ,atent case( since t+e
a/ount is bot+ esti/able and ,robable* T+is entr) &ill reduce inco/e b)
03##(### and Buc+anan &ill re,ort a litigation liabilit) o1 03##(###* T+e
01##(### sel1"insurance allo&ance +as no i/,act on inco/e or liabilities*
BRIE E!ERCISE 13"1-
Oil Plat1or/ 23#(###
Asset Retire/ent Obligation 23#(###

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SOLUTIONS TO E!ERCISES
E!ERCISE 13"1 $1#413 /inutes%
$a% Current liabilit)*
$b% Current liabilit)*
$c% Current liabilit) or long"ter/ liabilit) de,ending on ter/ o1 &arrant)*
$d% Current liabilit)*
$e% ootnote disclosure $assu/e not ,robable and.or not reasonabl) esti/able%*
$1% Current liabilit)*
$g% Current or noncurrent liabilit) de,ending u,on t+e ti/e in5ol5ed*
$+% Current liabilit)*
$i% Current liabilit)*
$6% Current liabilit)*
$7% Current liabilities or long"ter/ liabilities as a deduction 1ro/ 1ace 5alue o1 note*
$l% Current liabilit)*
$/% Current liabilit)*
$n% Current liabilit)*
$o% ootnote disclosure*
$,% Se,arate ,resentation in eit+er current or long"ter/ liabilit) section*
E!ERCISE 13"3 $1#41- /inutes%
ALE!AN8ER CO9PAN:
Partial Balance S+eet
8ece/ber 31( -#1-
Current liabilities;
Notes ,a)able $Note 1% 03##(###
Long"ter/ debt;
Notes ,a)able re1inanced in ebruar) -#13 $Note 1% '##(###
Note 1*
S+ort"ter/ debt re1inanced* As o1 8ece/ber 31( -#1-( t+e

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co/,an) +ad notes ,a)able totaling 01(-##(### due on
ebruar) -( -#13* T+ese notes &ere re1inanced on t+eir due
date to t+e e<tent o1 0'##(### recei5ed 1ro/ t+e issuance o1
co//on stoc7 on =anuar) -1( -#13* T+e balance o1
03##(### &as li>uidated using current assets*
OR
Current liabilities;
Notes ,a)able $Note 1% 03##(###
Long"ter/ debt;
S+ort"ter/ debt e<,ected to be re1inanced $Note 1% '##(###
$Sa/e 1ootnote as abo5e*%
E!ERCISE 13"? $1#413 /inutes%
Salaries and @ages E<,ense 2?#(###
@it++olding Ta<es Pa)able ?#(###
ICA Ta<es Pa)ableA -?(#2#
Union 8ues Pa)able '(###
Cas+ 3B-('B#
AC$02?#(### 4 012#(###% ! D*B3E F 0-B(#1#G
012#(### ! 1*23E F 0-(#3#H 0-B(#1# I 0-(#3#
F 0-?(#2#
Pa)roll Ta< E<,ense -'(22#
ICA Ta<es Pa)able -?(#2#
$See ,re5ious co/,utation*%
UTA Ta<es Pa)able
C$02?#(### 4 021#(###% ! *?E% 3B#
SUTA Ta<es Pa)able
C0D#(### ! $3*3E 4 -*3E%G ?2#
E!ERCISE 13"1- $134-# /inutes%
In5entor) o1 Pre/iu/s $?(?## ! 0*'#% D('-#

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Cas+ D('-#
Cas+ $1-#(### ! 03*3#% 3'B(###
Sales Re5enue 3'B(###
Pre/iu/ E<,ense 3('B#
In5entor) o1 Pre/iu/s C$22(### J 1#% ! 0*'#G 3('B#
Pre/iu/ E<,ense -(3-#A
Pre/iu/ Liabilit) -(3-#
AC$1-#(### ! B#E% 4 22(###G J 1# ! 0*'# F -(3-#

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E!ERCISE 13"13 $-#43# /inutes%
$1% T+e ASB re>uires t+at( &+en so/e a/ount &it+in t+e range o1 e<
,ected loss a,,ears at t+e ti/e to be a better esti/ate t+an an) ot+er
a/ount &it+in t+e range( t+at a/ount is accrued* @+en no a/ount
&it+in t+e range is a better esti/ate t+an an) ot+er a/ount( t+e dollar
a/ount at t+e lo& end o1 t+e range is accrued and t+e dollar a/ount at
t+e +ig+ end o1 t+e range is disclosed* In t+is case( t+ere1ore( 9a5eric7
Inc* &ould re,ort a liabilit) o1 0?##(### at 8ece/ber 31( -#1-*
$-% T+e loss s+ould be accrued 1or 0B(###(###* T+e ,otential insurance
reco5er) is a gain contingenc)Kit is not recorded until recei5ed*
According to ASB ASC 21#"3#"33"?( clai/s 1or reco5eries /a) be
recorded i1 t+e reco5er) is dee/ed ,robable*
$3% T+is is a gain contingenc) because t+e a/ount to be recei5ed &ill be
in e<cess o1 t+e boo7 5alue o1 t+e ,lant* Lain contingencies are not
recorded and are disclosed onl) &+en t+e ,robabilities are +ig+ t+at a
gain contingenc) &ill beco/e realit)*
E!ERCISE 13"12 $-343# /inutes%
$a% Plant Assets B##(###
Cas+ B##(###
Plant Assets 3'(#?D
Asset Retire/ent Obligation 3'(#?D
$b% 8e,reciation E<,ense B#(###
Accu/ulated 8e,reciationK
Plant Assets
B#(###
8e,reciation E<,ense 3('#'
Accu/ulated 8e,reciationK

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Plant Assets 3('#'A
Interest E<,ense -(323
Asset Retire/ent Obligation -(323AA
A03'(#?D.1#*
AA03'(#?D ! *#B*

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E!ERCISE 13"12 $Continued%
$c% Asset Retire/ent Obligation D#(###
Loss on ARO Settle/ent 1#(###
Cas+ ?#(###
E!ERCISE 13"1B $-#4-3 /inutes%
M Assets Liabilities O&nersN E>uit) Net Inco/e
1* I I NE NE
-* NE NE NE NE
3* NE I 8 8
2* I I NE NE
3* NE I 8 8
B* I I I I
D* 8 I 8 8
?* NE I 8 8
'* NE I 8 8
1#* I I NE NE
11* NE I 8 8
1-* I I I I
13* NE I 8 8
12* 8 8 NE NE
13* NE I 8 8
1B* 8 NE 8 8
1D* NE 8 I I
1?* NE I 8 8
E!ERCISE 13"1D $1#413 /inutes%
$a% Current ratio F Current Assets F 0-1#(### F 3*##
Current Liabilities 0D#(###

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Current ratio /easures t+e s+ort"ter/ abilit) o1 t+e co/,an) to /eet
its currentl) /aturing obligations*
$b%
Acid"test ratio F
Cas+ I S+ort"ter/ In5est/ents I Net Recei5ables
F
0113(###
F 1*B2
Current Liabilities 0D#(###
Acid"test ratio also /easures t+e s+ort"ter/ abilit) o1 t+e co/,an) to
/eet its currentl) /aturing obligations* Ho&e5er( it eli/inates assets
t+at /ig+t be slo& /o5ing( suc+ as in5entories and ,re,aid
e<,enses*
$c% 8ebt to total assets F Total Liabilities F 0-1#(### F 2?*?2E
Total Assets 023#(###
T+is ratio ,ro5ides t+e creditors &it+ so/e idea o1 t+e cor,orationNs
abilit) to &it+stand losses &it+out i/,airing t+e interests o1 creditors*
$d% Rate o1 return on assets F
Net Inco/e
F
0-3(###
F 3*?1E
A5erage Total Assets 023#(###
T+is ratio /easures t+e return t+e co/,an) is earning on its a5erage
total assets and ,ro5ides one indication related to t+e ,ro1itabilit) o1
t+e enter,rise*

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SOLUTIONS TO PROBLE9S
PROBLE9 13"2
$a%
Na/e
Earnings
to Aug* 31
Se,te/ber
Earnings
Inco/e Ta<
@it++olding ICA UTA SUTA
B* 8* @illia/s 0 B(?## 0 ?## 0 ?# 0 B1*-# 0-*##A 01*B#AA
8* Ra)e B(3## D## D# 33*33 3*##AAA 2*##AAAA
O* Ba7er D(B## 1(1## 11# ?2*13 4 4
* Lo,eP 13(B## 1('## 1'# 123*33 4 4
A* 8aniels 1#D(### 13(### 1(3## 1??*3#
a
4 4
B* Oingston 11-(### 1B(### 1(B## -3-*##
b
4 4
Total 0-33(3## 033(3## 03(33# 0DB2*D3 0D*## 03*B#
A$0D(### 4 0B(?##% ! 1E F 0-*##
a
013(### ! 1*23E F 01??*3#
AA$0D(### 4 0B(?##% ! *?E F 01*B#
b
01B(### ! 1*23E F 0-3-*##
AAA$0D(### 4 0B(3##% ! 1E F 03*##
AAAA$0D(### 4 0B(3##% ! *?E F 02*##
Salaries and @ages E<,ense 33(3##*##
@it++olding Ta<es Pa)able 3(33#*##
ICA Ta<es Pa)able DB2*D3
Cas+ -'(3?3*-3
$b% Pa)roll Ta< E<,ense DDD*33
ICA Ta<es Pa)able DB2*D3
UTA Ta<es Pa)able 3*B#
SUTA Ta<es Pa)able D*##
$c% @it++olding Ta<es Pa)able 3(33#*##
ICA Ta<es Pa)able 1(3-'*3#
UTA Ta<es Pa)able 3*B#
SUTA Ta<es Pa)able D*##
Cas+ 2(?'-*1#

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PROBLE9 13"3
$a% Cas+ $2## ! 0-(3##% 1(###(###
Sales Re5enue 1(###(###
$b% Cas+ $2## ! 0-(3##% 1(###(###
Sales Re5enue 1(###(###
@arrant) E<,ense $2## ! C0133 I 01?3G% 13B(###
@arrant) Liabilit) 13B(###
$c% No liabilit) &ould be disclosed under t+e cas+"basis /et+od relati5e
to 1uture costs due to &arranties on ,ast sales*
$d% Current Liabilities;
@arrant) Liabilit) 0B?(###
Long"ter/ Liabilities;
@arrant) Liabilit) 0B?(###
$e% @arrant) E<,ense B1(3##
In5entor) -1(2##
Salaries and @ages Pa)able 3'('##
$1% @arrant) Pa)able B1(3##
In5entor) -1(2##
Salaries and @ages Pa)able 3'('##

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