Free Essay

Intermediate Accounting

In: Business and Management

Submitted By latoyabush
Words 298
Pages 2
A contingent liability is a liability incurred as a result of a loss contingency. Kieso, Weygandt & Warfield defines a contingency as an “existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.” Liabilities are contingent on one or more future events to confirm the potential loss, payee, date payable or even existence of the loss.
FASB identifies three categories to define the likelihood of losses that include probable, reasonably possible and remote. Liabilities that are probable and can be reasonably estimated should be accrued including pending litigation. The company should disclose the information that it has about the case including the probability of a favorable outcome and similarities to other cases.
Kieso, Weygandt, & Warfield. (2012). Intermediate Accounting. 14th ed. Hoboken, NJ: John, Wiley & Sons.

(a) Warranty costs are expensed as incurred under the cash-basis method. The costs are charged in the period in which the seller or manufacturer complies with the warranty. No liability is recorded for the future warranty costs and charges are not recorded at the time of sale. This method is normally used when the costs are immaterial or the warranty covers a short period. The cash-basis must be used when a liability is not probable or cannot be reasonably estimated.
However, if it is probable that a warranty will occur and the costs can be reasonably estimated, the accrual method must be used. The costs are charged as an expense in the year of the sale. The accrual method is the generally accepted method and should be used when the warranty is a vital and inseparable part of the sale.

Similar Documents

Premium Essay

Intermediate Accounting

...Exercises 1, 2, 3, 5 1, 5, 6 2 1 3 14, 15 24, 25 Kieso, Intermediate Accounting, 15/e, Solutions Manual 4 1 (For Instructor Use Only) 10-1 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives Questions Brief Exercises Concepts for Analysis Exercises Problems 1, 2, 3, 4, 5, 11, 12, 13 1, 2, 3, 4, 5, 6, 11 CA10-1 4, 5, 6, 11, 12 3 CA10-2 1. Describe property, plant, and equipment. 1 2. Identify the costs to include in initial valuation of property, plant, and equipment. 2, 3, 4, 5, 6, 21 3. Describe the accounting problems associated with self-constructed assets. 8 4. Describe the accounting problems associated with interest capitalization. 8, 9, 10, 11 2, 3, 4 5, 6, 7, 8, 9, 10 5, 6, 7 CA10-3 5. Understand accounting issues related to acquiring and valuing plant assets. 7, 12, 14, 16, 17, 19, 20, 22 5, 6, 7, 8, 9, 10, 11, 12 11, 12, 13, 14, 15, 16, 17, 18, 19, 20 3, 4, 8, 9, 10, 11 CA10-4, CA10-6 6. Describe the accounting treatment for costs subsequent to acquisition. 6, 13, 15, 18 13 21, 22, 23 7. Describe the accounting treatment for the disposal of property, plant, and equipment. 7, 23 14, 15 24, 25 10-2 Copyright © 2013 John Wiley & Sons, Inc. 1 Kieso, Intermediate Accounting, 15/e, Solutions Manual CA10-5, CA10-6 2, 4 (For Instructor......

Words: 18805 - Pages: 76

Premium Essay

Intermediate Accounting

...INTERMEDIATE (FINANCIAL) ACCOUNTING I SUBCLASS KLM CASE ANALYSIS QUESTIONS CASE 1 – REVENUE RECOGNITION AND EARNINGS MANAGEMENT INTERMEDIATE (FINANCIAL) ACCOUNTING I SUBCLASS KLM CASE ANALYSIS QUESTIONS CASE 2 – REVENUE RECOGNITION FOR A CONSTRUCTION PROJECT HKU Technology Inc. (Hereafter, HKU Tech) is a large construction contracting firm that serves a variety of industrial customers that purchase machinery and equipment from HKU Tech. HKU Tech’s business primarily involves the design and manufacture of large, industrial machinery and tooling that is used by its customers in manufacturing parts and components for fighter jets, transport planes, and other aerospace-related machinery and equipment. All of HKU Tech’s construction contracts involve the design, development, and manufacture of machines that are unique and customized to the specifications of its customers. HKU Tech negotiates all its contracts with its customers on either a fixed-price or cost-plus basis. HKU Tech has developed an accounting policy to recognize revenue related to its customized construction contracts, which is outlined as follows: The Company performs under a variety of contracts, some of which provide for reimbursement of cost plus fees, and others that are fixed-price-type contracts. Revenues and fees on these contracts are primarily recognized on a contract-by-contract basis using the percentage-ofcompletion method of accounting, which is most often based on contract costs incurred to date......

Words: 1474 - Pages: 6

Free Essay

Intermediate Accounting

...Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) has been the assigned organization in a private sector for establishing standards. These standards are important to be useful because it allows investors to make informed decisions. Financial information must be reliable, consistent and transparent. Since 1973, FASB has been part of a structure that’s independent of all other business and professional organizations. The rest of the parts are Financial Accounting Foundation (FAF), Financial Accounting Standards Advisory Council (FASAC), Governmental Accounting Standards Board (GASB) and Governmental Accounting Standards Advisory Council (GASAC). The role of monitoring and controlling business reporting and accounting practices in a modern organization is to establish and improve standards of financial accounting. FASB has a board full of members that participate in accomplishing the mission. There are 7 board members as well as several staff members that help assist. The board members are: * Russell Golden is a chairman. He began in July of 2013. He served six years as a staff member (technical Director) for the FASB before he got appointed to the chairmen. His term will end in 2017, but then he can get an appointment to an additional 3 more years. He is also chaired in FASB’S emerging issues task force. * James Kroeker is the vice chairman. He was appointed in September 2013. He served as the deputy managing partner for......

Words: 2085 - Pages: 9

Premium Essay

Intermediate Accounting

...Check Figures to accompany INTERMEDIATE ACCOUNTING Seventh Edition Spiceland, Sepe and Nelson Chapter 1 BE 1-1 Net income, $208,000 BE 1-2 1. Liabilities BE 1-3 2. The economic entity assumption BE 1-4 1.The matching principle BE 1-5 3. Disagree, matching principle E1-1 Req. 1, Net operating cash flow, Yr. 2, $50,000 Req. 2, Net income, Year 1, $25,000 E1-2 Req. 1, Net income, Year 2, $190,000 E1-5 3. Auditors E1-6 5. Comprehensive income E1-7 8. f E1-8 4. Timeliness E1-9 7. b E1-10 6. The going concern assumption E1-11 2. The periodicity assumption E1-12 1. Disagree, Monetary unit assumption E1-13 4. Agree, Matching principle E1-14 3. g. Matching principle Chapter 2 BE 2-1 4. –180,000, accounts receivable BE 2-2 2. Dr. Salaries expense, $40,000 BE 2-3 Accounts payable balance, $42,000 BE 2-4 2. Dr. Note receivable, $10,000 BE 2-5 1. Dr. Insurance expense, $3,000 BE 2-7 2. Cr. Prepaid advertising, $1,000 BE 2-9 Total operating expenses, $107,000 BE 2-10 Total assets, $91,000 BE 2-11 Cr. Retained earnings, $35,000 BE 2-12 Net income, $143,000 E2-1 6. + $6,000, Prepaid insurance E2-2 3. Dr. Inventory, $90,000 E2-3 Total debits, $471,000 E2-4 2. Cr. Cash, $40,000 E2-5 6. b E2-6 9. I E2-8 4. Dr. Interest expense, $4,000 E2-9 6. Cr. Supplies, $5,250 E2-11 Net income, $101,000 E2-12 Cr. Retained earnings, $177,000 E2-13 Cr. Retained earnings, $66,000 E2-14 Req. 3, Accrued wages,......

Words: 7295 - Pages: 30

Premium Essay

Intermediate Accounting Ch 4

...What we’ll cover: 1. Income Statement 2. Format of the Income Statement 3. Reporting Irregular Items 4. Special Reporting Issues 1. Income Statement a. Usefulness • Evaluate past performance • Predicting future performance • Help assess the risk or uncertainty of achieving future cash flows b. Limitations • Companies omit items that cannot be measured reliably • Income is affected by the accounting methods employed • Income measurement involves judgment c. Quality of Earnings • Companies have incentives to manage income to meet or beat Wall Street expectations, so that o market price of stock increases and o value of stock options increase. • Quality of earnings is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. 2. Format of the Income Statement a. Elements of the Income Statement • Revenues – Inflows of assets or settlements of its liabilities that constitute the entity’s ongoing major or central operations. Examples of Revenue Accounts: o Sales o Fee revenue o Interest revenue o Dividend revenue o Rent revenue • Expenses – Outflows or other using-up of assets or incurrences of liabilities that constitute the entity’s ongoing major or central operations.......

Words: 2418 - Pages: 10

Free Essay

Intermediate Accounting I Paper

...Accounting Policies for Reporting Income Strayer University Intermediate Accounting 1 – ACC 303 February 6, 2012 Professor Elizabeth Hewitt Accounting Policies for Reporting Income Examining accounting standards and policies information from various sources such as FASB Accounting Standards Codification (Financial Accounting Standards Board), AICPA (American Institute of CPA’s) and FASAB (Federal Accounting Standards Advisory Board) I can give a overview of how these items are defined in various resources. The FASB Accounting Standards Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Looking at the online FASB site it offers the most GAAP generally accepted accounting principles. The site is set up so that you can access the topics you’re looking for in a sort of drill down menu type of search. The site is somewhat user friendly in that it offers a tutorial on how to use the site. It also offers several useful functions such as cross-referencing and join-sections. The AICPA sets ethical standards for the accounting profession and U.S. auditing standards for audits of private companies, non-profit organizations and federal, state and local governments. This resource offers tabs with drop down menus; one of which is marked Research under this tab you can find Standards that will take you to the Standard page offering a list of topics on Professional Accountant Standards such as ‘Audit and Attest......

Words: 770 - Pages: 4

Premium Essay

Intermediate Accounting Liabilities and Equities

...ACCT 307 Intermediate Accounting 2, Part B Assignment Professor: Allan Bishop Student Name: Darrell Allen Student Number: 810-390-377 Date: April 4th, 2013 1. The two companies that I have chosen are WalMart and Target. They are both retailer industries that sell numerous different items as well as provide services to customers. Particularly Walmart, which offers auto-repairs, eye-glasses, prescription drugs and fast food service (McDonalds). They sell items such as clothing, basic food items (amongst a wide variety of other food items), movies, books, video games and more. 2. A) The “capital” for Target is: Property and equipment: 2011 2012 Land 6,122 5,928 Buildings and improvements 26,837 23,081 Fixtures and equipment 5,141 4,939 Computer hardware and software 2,468 2,533 Construction-in-progress 963 567 Accumulated depreciation ...

Words: 868 - Pages: 4

Premium Essay

Notes for Intermediate Accounting

...Intermediate Accounting Chapter 1 * Essential characteristics of accounting are (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties * Financial accounting – process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties * Users – investors, creditors, managers, unions, and government agencies * financial statements – (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners’ or stockholders’ equity * president’s letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management’s forecasts, and social or environmental impact statements * Managerial accounting – process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company’s operations * Capital Allocation – process of determining how and at what cost money is allocated among competing interests * Objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt......

Words: 7392 - Pages: 30

Premium Essay

Intermediate Accounting 2 Midterm

...INTERMEDIATE ACCOUNTING 2 of 3 MIDTERM EXAM Pick 7 problems that you will do. Each problem is worth 14 points. Please put your answer in the space provided, any back up can be attached at the end of the exam as long as it is clearly labeled . Your work can be done by hand as long as it is legible. Select the 7 problems you are completing: 1, 4, 5, 9, 10, 11, 12 Problem 1—Accounts and Notes Payable. Described below are certain transactions of Larson Company for 2010: 1. On May 10, the company purchased goods from Fry Company for $60,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on May 18. 2. On June 1, the company purchased equipment for $90,000 from Raney Company, paying $25,000 in cash and giving a one-year, 10% note for the balance. 3. On September 30, the company discounted at 10% its $150,000, one-year zero-interest-bearing note at First State Bank. Instructions (a) Prepare the journal entries necessary to record the transactions above using appropriate dates. Date | Account Name | Debit | Credit | 05-10 | Purchases | 49,000 | | | Accounts Payable | | 49,000 | | To record purchased goods at net amounts. | | | 05-18 | Accounts Payable | 49,000 | | | Cash | | 49,000 | | To record payment of invoice. | | | 06-01 | Equipment | 90,000 | | | Cash | | 25,000 | | Note Payable | | 65,000 | | To record purchase of equipment. | |...

Words: 1854 - Pages: 8

Premium Essay

Intermediate Accounting Final

...088 = 19.8% PepsiCo: 2007 2006 Difference Percent $39,474 $35,137 $4,337 $4,337/$35,137 = 12.3% v. Are the revenue recognition policies of Coca-Cola and PepsiCo similar? Explain. Both Coca-Cola and PepsiCo have similar revenue recognition policies. Revenue is recognized for both companies when product is shipped or delivered to their customer based on sales that are considered reasonably collectible. Neither company allows for right of return. References The Coca-Cola Company. (2007). Coca-cola company 2007 annual report. Retrieved from http://csuglobal.blackboard.com/bbcswebdav/courses/KEY_ACT350/courseFiles_fall2013a/coca-cola_company_2007_annual_report.pdf Kieso, D., Weygandt, J., & Warfield, T. (2013). Intermediate accounting. (15 ed.). Hoboken, NJ: John Wiley & Sons, Inc. PepsiCo. (2007). Pepsico 2007 annual report. Retrieved from http://csuglobal.blackboard.com/bbcswebdav/courses/KEY_ACT350/courseFiles_fall2013a/pepsico_2007_annual_report.pdf...

Words: 2131 - Pages: 9

Premium Essay

Intermediate Accounting Ii

... SCHAUM’S OUTLINE OF THEORY AND PROBLEMS OF INTERMEDIATE ACCOUNTING II Second Edition BARUCH ENGLARD, M.S., M.B.A., CPA Associate Professor of Accounting The College of Staten Island The City University of New York SCHAUM’S OUTLINE SERIES New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2007, 1992 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. 0-07-151048-6 The material in this eBook also appears in the print version of this title: 0-07-146974-5. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. For more information, please contact George Hoare, Special Sales, at george_hoare@mcgraw-hill.com or (212) 904-4069. TERMS...

Words: 107484 - Pages: 430

Free Essay

Intermediate Accounting Chapter 1 Ppt

...INTERMEDIATE ACCOUNTING I (ACC 221) 21 Aug 2013 - 15 Oct 2013 TEACHER: Dr. Joseph L. Ilk, CPA, CMA, CVA, CPCM TELEPHONE: Office: (703) 805-4473 Home: (540) 582-6008 E-mail: jilk@nvcc.edu If you e-mail me, please put “ACC 221" and either "E40W" or "E80W" ” in the subject line. If you do not I will not recognize the e-mail and will delete the file. The student needs to put their First and Last Name in the e-mail so I know who it came from. OFFICE HOURS: Mon-Fri 8:00 p.m. - 9:00 p.m.I check my e-mail (jilk@nvcc.edu) every day. NOVA IT Helpdesk: (703) 426-4141 CONNECT HELPDESK: (800) 331-5094 PRE-REQUISITES: ACC 212 - Principles of Accounting II I. THE COURSE: ACC 221, intermediate accounting covers accounting principles and theory, including a review of the accounting cycle and accounting for current assets, current liabilities, and investments. Introduces various accounting approaches and demonstrates the effect of these approaches on the financial statement users II. SCOPE: The study will cover but not be limited to the following areas: Theoretical structure of financial accounting Time value of money Review of the accounting process Cash and receivables Balance sheet Inventories Income statement Plant, property, and equipment Cash flow statement Investments Income measurement and profitability analysis III. Course Learning Objectives: * Comprehend the environment and......

Words: 2091 - Pages: 9

Premium Essay

Intermediate Accounting Chap 1,2,3 Hw

...Derek Greenfield Intermediate Accounting I 3/2/2012 CA1-1.) 1. True 2. False, must comply with all standards and interpretations including disclosure requirements 3. True 4. False, FASB must operate in full view of public through a “due process” system that gives interested parties ample opportunity to make their views known CA1-3.) 1. D 2. A 3. D 4. B 5. A 6. B 7. A 8. B E2-5.) Assets- F Liabilities- B Equity- I Investment by owners- C Distribution to owners- D, K Comprehensive Income- L, G, E, C Revenue- J, H Expenses- H Gains- A Losses- A E2-7.) a. Fair value changes are not recognized in the accounting records. HISTORICAL COST PRINCIPLE b. Financial information is presented so that investors will not be misled. FULL DISCLOSURE PRINCIPLE c. Intangible assets are capitalized and amortized over periods benefited. MATCHING PRINCIPLE d. Repair tools are expensed when purchased. MATERIALITY e. Agricultural companies use market value for purposes of valuing crops. INDUSTRY PRACTICES f. Each enterprise is kept as a unit distinct from its owner or owners. ECONOMIC ENTITY ASSUMPTION g. All significant post-balance sheet events are reported. FULL DISCOSURE PRINCIPLE h. Revenue is recorded at point of sale. REVENUE RECOGNITION PRINCIPLE i. All important aspects of bond indentures are presented in financial statements. FULL DISCLOSURE PRINCPLE j. Rationale for......

Words: 795 - Pages: 4

Premium Essay

Kaplan Intermediate Accounting Unit 2

...‘rules’ for financial reporting. But what are these rules, where can a person find them, and which ones are more important?” One of the most common rules for financial reporting is GAAP, which is Generally Accepted Accounting Principles. GAAP are and is a combination of authoritative standards and simply the common accepted ways of recording and reporting accounting information from companies. GAAP can be found and imposed by companies so that investors have minimum level of consistency in the area of financial statements when analyzing companies for investment purposes. The GAAP covers such things as revenue recognition and balance sheets. Do understand also that companies are expected to follow GAAP rules when reporting their financial data via financial statements, so be very cautious if one is not using GAAP. The most important of financial reporting, is also the Financial Accounting Standard Board also known as the FASB, which is the highest of authoritative of Accounting Standards Codifications. GAAP is not statistic. It includes very complex standards that were issued in response to some very complicated business transactions. GAAP can be found in such industries; utilities, banking and insurance. You and a friend are in the same accounting class. During the first test, you observe that your friend cheated by copying one of her answers from another student (who was unaware of the copying). When the exams are returned, your grade is a B, while your......

Words: 469 - Pages: 2

Premium Essay

Accounting Intermediate Ch 3 Hw

...Carolyn Gaudioso 8-29-12 Intermediate Accounting Homework 1 CAC: a) Coca cola b) Coca cola- 34% Pepsi-32% c) Pepsi co had more depreciation and amortization expense, there is a difference in these amounts because coca cola had a higher percentage increase from 2008 to 2009 and also a greater 5 year average growth rate which shows that coca cola is a more popular company and there is a reduction in a capital account of the value of an asset over time. Also their equipment that they use can depreciate faster than coca-cola’s equipment. FSAC: a) Percentage change in sales from 2008- 2007 is 9% increase and from 2008-2009 is decreased 2%. The percentage change in operating profits from 2007 to 2008 is 4% and from 2008-2009 it is 2%. The change in net cash flow less capital expenditures from 2007-2008 is decreased 2% and from 2008-2009 is 57%. b) The trend that seems to be more favorable is the sales and the trend that seems less favorable is the net cash flow less capital expenditures. The significance of the trend being less favorable from net cash flow less capital expenditure is that is shows that the net cash flow in 2008 is less than the capital expenditure thus causing a decrease in 2008 which causes a decrease of 2%. IFRS 3-6) a) April 2010-7,153. March 2009 -7,258.1 b) Cash in April 2010 -1,229. c) Selling and Marketing expense 2010-3,618.5. In 2009- 3,371.9 d) Revenues 2010-9,536.6. In 2009- 9062.1 e) Pg 102- Prepaid......

Words: 302 - Pages: 2