Accounting Spring 2024
Ch 12 - ANS
Assume a weekly payroll of $10,000 entirely subject to F.I.C.A. and Medicare (7.65%), federal (0.8%) and
state (4%) unemployment taxes, with income tax withholding of $1,320 and union dues of $88
deducted. The company records the employee payroll deductions and the employer payroll taxes as
follows: - ANSDr. Salaries and Wages Expense $10,000
Cr. Withholding Taxes Payable $1,320
Cr. FICA Taxes Payable $765
Cr. Union Dues Payable $88
Cr. Cash $7,827
Dr. Payroll Tax Expense $1,245
Cr. FICA Taxes Payable $765
Cr. FUTA Taxes Payable $80
Cr. SUTA Taxes Payable $400
To Record Sale of 10 $200 Gift Cards - ANSDr. Cash $2,000 (10 × $200)
Cr. Unearned Gift Card Revenue $2,000
Record Redemption of 6 $200 Gift Cards - ANSDr. Unearned Gift Card Revenue $1,200
Cr. Sales Revenue (6 × $200) $1,200
Accounting for Gain contingencies: - ANSNot recorded and are only disclosed when the probability is
high that it will become a reality
Accounting for Loss contingencies: - ANSResult in recognition of a contingent liability if certain criteria
are met.
, Recognition of Loss Contingencies: depends on 1) the likelihood that the future event or events will
confirm the incurrence of liability and 2) the availability of a reasonable estimate of the amount of loss.
Probable:
Possible:
Remote: - ANSProbable: Recognize a probable liability if the amount can be reasonably estimated. If not
estimable, disclose facts in a note.
Reasonably Possible: Disclose a possible liability in a note.
Remote: Ignore. No recognition or disclosure
Accrual of a loss contingency should be made if both of the following conditions are met: - ANS1. It is
probable that a liability has been incurred at the date of the financial statements.
2. The amount of the loss can be reasonably estimated.
What are the 3 most common loss contingencies? - ANS1. Litigation, claims, and assessments.
2. Consideration payable (e.g., premiums and coupons).
3. Guarantee and warranty costs.
Denson Machinery Company begins production of a new machine in July 2020 and sells100 of these
machines for $5,000 cash by year-end. Each machine is under warranty for one year. Denson estimates,
based on past experience with similar machines, that the warranty cost will average $200 per unit.
Further, as a result of parts replacements and services performed in compliance with machinery
warranties, it incurs $4,000 in warranty costs in 2020 and $16,000 in 2021 - ANSJuly-December 2020
(Sales revenues)Dr. Cash $500,000
Cr. Sales Revenue $500,000
July-December 2020 (Payment of warranty liability)
Dr. Warranty Expense $4,000
Ch 12 - ANS
Assume a weekly payroll of $10,000 entirely subject to F.I.C.A. and Medicare (7.65%), federal (0.8%) and
state (4%) unemployment taxes, with income tax withholding of $1,320 and union dues of $88
deducted. The company records the employee payroll deductions and the employer payroll taxes as
follows: - ANSDr. Salaries and Wages Expense $10,000
Cr. Withholding Taxes Payable $1,320
Cr. FICA Taxes Payable $765
Cr. Union Dues Payable $88
Cr. Cash $7,827
Dr. Payroll Tax Expense $1,245
Cr. FICA Taxes Payable $765
Cr. FUTA Taxes Payable $80
Cr. SUTA Taxes Payable $400
To Record Sale of 10 $200 Gift Cards - ANSDr. Cash $2,000 (10 × $200)
Cr. Unearned Gift Card Revenue $2,000
Record Redemption of 6 $200 Gift Cards - ANSDr. Unearned Gift Card Revenue $1,200
Cr. Sales Revenue (6 × $200) $1,200
Accounting for Gain contingencies: - ANSNot recorded and are only disclosed when the probability is
high that it will become a reality
Accounting for Loss contingencies: - ANSResult in recognition of a contingent liability if certain criteria
are met.
, Recognition of Loss Contingencies: depends on 1) the likelihood that the future event or events will
confirm the incurrence of liability and 2) the availability of a reasonable estimate of the amount of loss.
Probable:
Possible:
Remote: - ANSProbable: Recognize a probable liability if the amount can be reasonably estimated. If not
estimable, disclose facts in a note.
Reasonably Possible: Disclose a possible liability in a note.
Remote: Ignore. No recognition or disclosure
Accrual of a loss contingency should be made if both of the following conditions are met: - ANS1. It is
probable that a liability has been incurred at the date of the financial statements.
2. The amount of the loss can be reasonably estimated.
What are the 3 most common loss contingencies? - ANS1. Litigation, claims, and assessments.
2. Consideration payable (e.g., premiums and coupons).
3. Guarantee and warranty costs.
Denson Machinery Company begins production of a new machine in July 2020 and sells100 of these
machines for $5,000 cash by year-end. Each machine is under warranty for one year. Denson estimates,
based on past experience with similar machines, that the warranty cost will average $200 per unit.
Further, as a result of parts replacements and services performed in compliance with machinery
warranties, it incurs $4,000 in warranty costs in 2020 and $16,000 in 2021 - ANSJuly-December 2020
(Sales revenues)Dr. Cash $500,000
Cr. Sales Revenue $500,000
July-December 2020 (Payment of warranty liability)
Dr. Warranty Expense $4,000
