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ACC 3220

1/18/2016
CH 13 HW EX 12, 13, 14: PR 6,7,11

EX 13-12
No Doubt Co.
10 coupons for premium
purchased 8000 premiums @ .80 =
sold 110000 boxes @ 3.30 =
redeemed 44000 in 2014
extimated 60% total will be redeemed
Entries
Inventory of Premiums
Cash

$
6,400
$ 363,000

6,400
$

Cash
Sales Revenue

$ 363,000

Premium Expense
Inventory of Premiums

Premium Expense*
Premium Liability

*End of Period Adjusting


Total boxes sold
Total estimated redemption 60%
Boxes redeemed in 2014
Estimated future redemption
(22000/10) x .80 = 1760

6,400

$ 363,000
3,520
$

3,520

1,760

1,760

110000
66000
44000
22000

ACC 3220
1/18/2016
CH 13 HW EX 12, 13, 14: PR 6,7,11
EX 13-13
1) Salt-n-Pepa Inc.
Probable and likely to occur
The liability should be reported because it was in a time period before December 31, 2014,
before the statements are issued. The lawyers have determined it is probable. There is a
reasonable estimation. The lower amount should be reported and the higher amount should
be disclosed.

2) Alan Jackson Chemical


The loss of $5,000,000 should be reported.
The company's respnsibility is probable. The time was before December 31, 2014. There is a
reasonable estimation. The company will have to pay the whole $5,000,000. The $500,000 will
be considered a gain and will be reported when occurred.

3) Melissa Etheridge, Inc.


There is no report. It will be reported when the monies are received as a gain over the book
value.

er 31, 2014,

mount should

14. There is a
e $500,000 will

ver the book

ACC 3220
1/18/2016
CH 13 HW EX 12, 13, 14: PR 6,7,11

EX 13-14
Oil Products Co.
1-Jan-14
Purchsed Oil Tanker Depot
Est. operation 10 years
ARO cost
Present value of ARO
Eff interest rate 6%

$ 600,000
$
$

75,000
41,879

a) 2014, Jan 1
Oil Tanker Depot
Asset Retirement Obligation (ARO)

41,879

b) 2014, December 31
Depreciation Expense*
Accumulated Depreciation

Interest Expense**
Interest Payable

c) 2023, December 31
ARO
Loss on settlement ARO
Cash

41,879

4,188

2,153

80,000

4,188

$
$

2,153

75,000
5,000

* Depreciation

41879 / 10 yrs =

4,188

** Interest

41879 x 6% =

2,153

ACC 3220
1/18/2016
CH 13 HW EX 12, 13, 14: PR 6,7,11

PR 13-6
Dos Passos Co.
Sales occurred Dec 31, 2014
Sells TVsPrice
2014 Sold
Cost separate warranty
Sold warraties

$
$

TVs sold in 2014


900 x 300 =
Warranties sold in 2014 270 x 90 =
total revenue

900
300
90
270
$ 270,000
$
24,300
$ 294,300

Entries
a) 2014
Cash
Sales Revenue
Unearned Warranty Revenue

b) 2014 Balance Sheet


Dec 31 Unearned Warranty Revenue
Long-term liability

c) 2015
Dec 31 Unearned Warranty Revenue
Warranty Revenue
(24300 / 3) for 1 year
Dec 31

Warranty Parts Expense


Warranty Labor Expense
Cash

$ 294,300
$ 270,000
$
24,300

24,300

8,100

$
$

8,100

6,000

2,000
4,000

d) 2015 Balance Sheet


Dec 31 Unearned Warranty Revenue
(24300 / 3) for 1 yr
Current Liability
Dec 31

Unearned Warranty Revenue


(24300 - 8100) =
Long-term liability

8,100

16,200

ACC 3220
1/18/2016
CH 13 HW EX 12, 13, 14: PR 6,7,11
PR 13-7
Alvarado Co.
Sells a machine
12 mth warranty
2014 sells
warranty cost
parts
$
170
labor
$
220
a) accural
1)

2)

3)

4)

2014 sale
Cash
Sales Revenue
(7400 x 600)

2014 cost
Warranty parts expense
Warranty labor expense
Cash
(170 * 600)/2
(220 * 600)/2

7,400
600
390

$
$

2014 expense
Warranty parts expense
Warranty labor expense
Warratny Liability

$
$

2015 Warranty cost


Warranty Liability
Cash

4,440,000
$

4,440,000

117,000

117,000

117,000

51,000
66,000

51,000
66,000

117,000

cont. PR 13-7
b) cash basis
1)
2014 sales
Cash
Sales Revenue
(7400 x 600)

2)

2014 Warranty costs


Warranty parts expense
Warranty labor expense
Cash
(170 * 600)/2
(220 * 600)/2

4,440,000

$
$

4,440,000

117,000

51,000
66,000

3)

2014 Warranty expense


this is cash basis, there is no year end liability to record

4)

2015 Warranty costs


Warranty parts expense
Warranty labor expense
Cash
(170 * 600)/2
(220 * 600)/2

c)
accural
cash

$
$

51,000
66,000
$

117,000

Balance sheet liability December 31, 2014


117000
0

d)
best method to reflect income
the accural method would be the best to reflect the correct income. It matches the revenue
to the expense in the correct year. The cash method would not.
the expenses for 2014 would be understated
and the expense for 2015 would be overstated

atches the revenue

ACC 3220
1/18/2016
CH 13 HW EX 12, 13, 14: PR 6,7,11
PR 13-11
Polska Corp
a)
1)
uninsured accident
Uninsured accident loss
Uninsured accident liability

2)

seizure of property (expropriate)

3)

assigning liability to future event


no entry

b)
1)

350000
350000

In the 60,000, the legal counsel found an unfavorable outcome was unlikely. No record.
In the 350,000 lawsuit, legal counsel found an unfavorable outcome probable. Since it
occurred before the issue of statements and a reasonable estimate of the amount of loss
the 350,000 should be recorded.

2)

Since it has been communicated that the foreign government is going to expropriate
(seize) the assets of the company, it should be noted in the financial statements. The
foreign country is offering 40% of the fair market value of the business, which is
1925000 lower than the book value. The company can show the loss whe
assets when said assets are seized.

3)

The company should not establish a liability for expected future injury to others or
damage to property of others, even if it can reasonably estimate the amoount of losses.

was unlikely. No record.


ome probable. Since it
ate of the amount of loss

going to expropriate
ncial statements. The
usiness, which is
and write off the

injury to others or
e the amoount of losses.