PA1. LO 12.1 Consider the following situations and determine (1) which type of liability should be recognized (specificaccount), and (2) how much should be recognized in the current period (year).A. A business sets up a line of credit with a supplier. The company purchases $10,000 worth of equipment on credit. Termsof purchase are 5/10, n/30.B. A customer purchases a watering hose for $25. The sales tax rate is 5%.C. Customers pay in advance for season tickets to a soccer game. There are fourteen customers, each paying $250 perseason ticket. Each customer purchased two season tickets.D. A company issues 2,000 shares of its common stock with a price per share of $15.

Answered: PA1. LO 12.1 Consider the following…

PA1. LO 12.1 Consider the following situations and determine (1) which type of liability should be recognized (specific account), and (2) how much should be recognized in the current period (year).

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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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

PA1. LO 12.1 Consider the following situations and determine (1) which type of liability should be recognized (specific
account), and (2) how much should be recognized in the current period (year).
A. A business sets up a line of credit with a supplier. The company purchases $10,000 worth of equipment on credit. Terms
of purchase are 5/10, n/30.
B. A customer purchases a watering hose for $25. The sales tax rate is 5%.
C. Customers pay in advance for season tickets to a soccer game. There are fourteen customers, each paying $250 per
season ticket. Each customer purchased two season tickets.
D. A company issues 2,000 shares of its common stock with a price per share of $15.

Expert Solution

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A liability is something a person or company owes, usually a sum of money.

Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

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Accounting for Current liabilities, Provisions and Contingencies

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