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Chapter 11: Q5TI (page 597)
Match the likelihood of a future event with the reporting of the contingency. An answer may be selected more than once.
Likelihood of Future Event | How to Report the Contingency |
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Remote contingency do not disclose.
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What is the difference between gross pay and net pay?
Macintosh Company has monthly salaries of \(26,000. Assume Macintosh pays all the standard payroll taxes, no employees have reached the payroll tax limits, total income tax withheld is \)2,000, and the only payroll deductions are payroll taxes. Journalize the accrual of salaries expense, accrual of employer payroll taxes, and payment of employee and employer payroll taxes for Macintosh Company.
Freeman Motors, a motorcycle manufacturer, had the following contingencies.
a. Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman’s attorneys estimate the potential loss will be \(4,500,000.
b. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous.
c. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be \)75,000.
Determine the appropriate accounting treatment for each of the situations Freeman is facing.
Coltrane Company has a \(5,000 note payable that is paid in \)1,000 instalments over five years. How would the portion that must be paid within the next year be reported on the balance sheet?
Accounting for warranties, vacancies and bonuses
McNight Industries completed the following transactions during 2008:
| Nov.21 | Made sales of \(52,000. McNight estimates that warranty expense is 6% of sales.(Record only the warranty expense.) |
| 30 | Paid \)1,600 to satisfy warranty claims. |
| Dec.31 | Estimated vacation benefits expense to be \(6,000 |
| 31 | McNight expected to pay its employees a 3% bonus on net income after deducting the bonus. Net income for the year is \)52,000 |
Journalize the transactions. Explanations are not required. Round to the nearest dollar.
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