Chapter 11: Q13RQ (page 604)
What is a contingent liability? Provide some examples of contingencies.
Contingent liabilities are potential but not actual and depend upon some future event.
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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.
How do unearned revenues arise?
Curtis Company is facing a potential lawsuit. Curtis’s lawyers think that it is reasonably possible that it will lose the lawsuit. How should Curtis report this lawsuit?
What payroll taxes is the employer responsible for paying?
Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling \(600,000 during 2018. The company received cash for 20% of the sales and notes receivable forthe remainder. Warranty payments totaled \)10,000 during 2018.
Requirements
Record the sales, warranty expense, and warranty payments for the company.
Ignore cost of goods sold.
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