!Required information[The following information applies to the questions displayed below.]A company designs and sells high-end stereo equipment for auto and home use. Engineers notified management inDecember Year 1 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that aproduct recall is probable, estimated to cost the company $3.1 million. The fiscal year ends on December 31.3. What liability, if any, should the company report in its Year 1 balance sheet? (Enter your answer in dollars, not in millions (i.e. 5.5should be entered as 5,500,000).)Liability to be reported

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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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The following items pertain to possible provisions: a. A company uses a part manufactured in Germany in its automobile manufacturing plant. There has been a concern about the failure of this part in cars manufactured in Germany. No failures have occurred to date in Canada. The company decided to do a voluntary recall of all cars manufactured with this part. The recall is 40% complete and has cost $1,250,000 to date. b. A company self-insures for floods. That is, it pays no insurance but is liable to replace assets lost through flood damage. No losses have been incurred this year, but there have been $225,000 of losses in most other years, and the company is concerned that there might well be $450,000 of losses next year, evening out the pattern. c. A company offers a three-year guarantee over parts and labour for products sold to ensure that parts work as expected. There were no payments this year, and only 5% of products sold this year are expected to need repairs in the next year.…
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35. Management has recently purchased new equipment but is uncertain about its useful life. For the initial year, management estimated a useful life of 10 years. However, due to a major accident during the first year, management is now uncertain about the equipment's functionality and has revised its estimate to 5 years and included a description of their uncertainty and of this change in estimated useful life in financial statement disclosures. Which of the following is an accurate statement regarding this approach? A) Information contains error because management changed its estimates on the useful life of the equipment. B) Information contains error because the useful life of the equipment is uncertain. C) Information is free from error because management has provided enough disclosure regarding the uncertain estimate. D) Information is free from error because management made the correct decision in revising the estimated useful life of the equipment.
The Laura Company has the following errors on its books as of December 31, 2020. The books for 2020 have not yet been closed. a. In 2020, fully depreciated equipment (with no residual value) that originally cost $8,000 was sold for $700 as scrap. The company credited the $700 proceeds to Equipment. b. On January 1, 2019, the company recorded the purchase of equipment in exchange for a three-year, noninterest-bearing note payable in the amount of $10,000. Interest rates were then 8%, but no recognition was made of this fact. The present value of $1 at 8% for three periods is 0.7938. (Ignore depreciation.) Required: Prepare journal entries to correct these errors at December 31, 2020. Ignore income taxes.
As a standard practice, the company does not recognize a provision for a guarantee of good operation of the products sold. Based on past statistics, the cost of repairing damage of products sold in the fiscal year amounts to € 500 while the cost of repairing damaged products sold in previous years amounts to € 600. If the balance sheet net worth is 5000, what will be the actual net worth at the end of the fiscal year?
Pastina Company manufactures and sells various types of pasta to grocery chains as private label brands. The company’s fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2011, appears below: The equipment is being depreciated using the straight-line method over an eight-year useful life with $10,000 salvage value. The company estimates that 4% of all year-end accounts receivable probably will not be collected. Employee wages are paid twice a month, on the 22nd wages earned for the 1st through the 15th , and on the 7th of the following month for wages earned from the 16th through the end of month. Wages earned from December 16 through December 31, 2011, were $1,565. On October 1, 2011, Pastina borrowed $50,800 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 10%. The principal is due in 10 years. On April 1, 2011, the company lent a supplier $28,000 and a note was signed requiring principal and…
The following three independent sets of facts relate to contingent liabilities: 1. In November of the current year, an automobile manufacturing company recalled all pickup trucks manufactured during the past two years. A flaw in the battery cable was discovered and the recall provides for replacement of the defective cables. The estimated cost of this recall is $3.3 million. 2. The EPA has notified a company of violations of environmental laws relating to hazardous waste. These actions seek cleanup costs, penalties, and damages to property. The company is reasonably certain there will be cost associated with the cleanup, but cannot estimate the amount. The cleanup cost could be as high as $4,130,000 or as little as $630,000 and insurance could reimburse all or part of the cost. There is no way to more accurately estimate the cost to the company at this time. 3. Holland Company does not carry property damage insurance because of the cost. The company has suffered substantial losses each…
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On 4 January 20X5, a new legislation was enacted requiring the company to remediate damages to the land due to the use of harsh chemicals in their manufacturing plant. The total estimated cost is $850,000. The company plans to perform the work in nine years. The interest rate specific to the liability is 7%. Prepare the journal entries on 4 January 20X5 and 31 December 20X5.
General Motors Corporation reported $2.6 billion of product warranties in the Current Liabilities section of a recent balance sheet. How would costs of repairing a defective product be recorded?

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