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Chapter 13: Question 1Q (page 691)
Distinguish between a current liability and a long-term debt
Both current liability and long-term debt are liabilities but they differ according to their nature and duration of getting paid off.
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In determining the amount of a provision, a company using IFRS should generally measure:
(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.
(b) Using the minimum amount of the loss in the range.
(c) Using the best estimate of the amount of the loss expected to occur.
(d) Using the maximum amount of the loss in the range.
E13-10 (L03) (Warranties) Soundgarden Company sold 200 color laser copiers on July 10, 2017, for \(4,000 apiece, together with a 1-year warranty. Maintenance on each copier during the warranty period is estimated to be \)330.
Instructions
Prepare entries to record the sale of the copiers, the related warranty costs, and any accrual on December 31, 2017. Actual warranty costs (inventory) incurred in 2017 were $17,000.
BE13-4 (L01) Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2017, for $18 each. Prepare Sport Pro’s August 1, 2017, journal entry and the December 31, 2017, annual adjusting entry, assuming the magazines are published and delivered monthly.
Define (a) a contingency and (b) a contingent liability.
(Fair Value Measurement Issues) Assume the same information as in E17-19 for Lilly Company. In addition,
assume that the investment in the Woods Inc. stock was sold during 2018 for \(195,000. On December 31, 2018, the following
information relates to its two remaining investments of common stock.
Cost Fair Value
(at purchase date) (at December 31)
Investment in Arroyo Company stock \)100,000 \(140,000
Investment in Lee Corporation stock 250,000 310,000
Total \)350,000 \(450,000
Net income before any security gains and losses for 2018 was \)905,000.
Instructions
(a) Compute the amount of net income or net loss that Lilly should report for 2018, taking into consideration Lilly’s securitytransactions for 2018.
(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock atDecember 31, 2018.
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