Chapter 9: Q3DQ (page 428)
What are the three important questions concerning the uncertainty of liabilities?
The three important questions concerning the uncertainty of liabilities are whom to pay, when to pay, and how much to pay.
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Why are warranty liabilities usually recognized on the balance sheet as liabilities even when they are uncertain?
The following items appear on the balance sheet of a company with a two-month operating cycle. Identify
the proper classification of each item is as follows: Cif it is a current liability, Lif it is a long-term liability,
or Nif it is not a liability.
1. Notes payable (due in 13 to 24 months)
2. Notes payable (due in 6 to 12 months)
3. Notes payable (mature in five years)
4. Current portion of long-term debt
5. Notes payable (due in 120 days)
6. FUTA taxes payable
7. Accounts receivable
8. Sales taxes payable
9. Salaries payable
10. Wages payable
Refer to Samsung’s recent balance sheet in Appendix A. What current liabilities related to income taxes are on its balance sheet? Explain the meaning of each income tax account identified.
Question: Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes).
Miller Company
Sales \(1,000,000
Variable expenses (80%) 800,000
Income before interest 200,000
Interest expense (fixed) 60,000
Net income \) 140,000
Weaver Company
Sales \(1,000,000
Variable expenses (60%) 600,000
Interest expense (fixed) 260,000
Net income \) 140,000
Required
1. Compute times interest earned for Miller Company.
2. Compute times interest earned for Weaver Company.
3. What happens to each company’s net income if sales increase by 30%?
4. What happens to each company’s net income if sales increase by 50%?
5. What happens to each company’s net income if sales increase by 80%?
6. What happens to each company’s net income if sales decrease by 10%?
7. What happens to each company’s net income if sales decrease by 20%?
8. What happens to each company’s net income if sales decrease by 40%?
Analysis Component
9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two companies and the ratio values you computed in parts 1 and 2.
On November 7, 2017, Mura Company borrows \(160,000 cash by signing a 90-day, 8% note payable with
a face value of \)160,000.
(1) Compute the accrued interest payable on December 31, 2017,
(2) Prepare the journal entry to record the accrued interest expense at December 31, 2017, and
(3) Prepare the journal entry to record payment of the note at maturity.
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