At the end of 2022, the following information is available for Great Adventures. Additional interest for five months needs to be accrued on the $32,200, 6% loan obtained on August 1, 2021. Recall that annual interest is paid each July 31. Assume that $12,200 of the $32,200 loan discussed above is due next year. By the end of the year, $20,000 in gift cards have been redeemed. The company had sold gift cards of $27,200 during the year and recorded those as Deferred Revenue. Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The company believes the likelihood of payment occurring is probable, and the estimated amount to be paid is $14,200. For sales of MU watches, Great Adventures offers a warranty against defect for one year. At the end of the year, the company estimates future warranty costs to be $6,200. No Date General Journal Debit Credit 1 Dec 31 Interest Expense 805 Interest Payable 805 2 Dec 31 Notes Payable (Long-term) 12,200 Notes Payable (Current) 12,200 3 Dec 31 Deferred Revenue 20,000 Sales Revenue 20,000 4 Dec 31 Loss 14,200 Contingent Liability 14,200 5 Dec 31 Warranty Expense 6,200 Warranty Liability 6,200 6 Dec 31 Service Revenue Interest Revenue Sales Revenue Retained Earnings 7 Dec 31 Retained Earnings Supplies Expense Salaries Expense Interest Expense Income Tax Expense Insurance Expense Warranty Expense 6,200

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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At the end of 2022, the following information is available for Great Adventures.

Additional interest for five months needs to be accrued on the $32,200, 6% loan obtained on August 1, 2021. Recall that annual interest is paid each July 31.
Assume that $12,200 of the $32,200 loan discussed above is due next year.
By the end of the year, $20,000 in gift cards have been redeemed. The company had sold gift cards of $27,200 during the year and recorded those as Deferred Revenue.
Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The company believes the likelihood of payment occurring is probable, and the estimated amount to be paid is $14,200.
For sales of MU watches, Great Adventures offers a warranty against defect for one year. At the end of the year, the company estimates future warranty costs to be $6,200.

No	Date	General Journal	Debit	Credit
1	Dec 31	Interest Expense	805
		Interest Payable		805

2	Dec 31	Notes Payable (Long-term)	12,200
		Notes Payable (Current)		12,200

3	Dec 31	Deferred Revenue	20,000
		Sales Revenue		20,000

4	Dec 31	Loss	14,200
		Contingent Liability		14,200

5	Dec 31	Warranty Expense	6,200
		Warranty Liability		6,200

6	Dec 31	Service Revenue
		Interest Revenue
		Sales Revenue
		Retained Earnings

7	Dec 31	Retained Earnings
		Supplies Expense
		Salaries Expense
		Interest Expense
		Income Tax Expense
		Insurance Expense
		Warranty Expense		6,200

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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