19th Edition

ISBN: 9781947172685

Author: OpenStax

Publisher: OpenStax College

See similar textbooks

Videos

Textbook Question

Chapter 12, Problem 7PA

Emperor Pool Services provides pool cleaning and maintenance services to residential clients. It offers a one-year warranty on all services. Review each of the transactions, and prepare any necessary journal entries for each situation.

A. March 31: Emperor provides cleaning services for fifteen pools during the month of March at a sales price per pool of $550 cash. Emperor records warranty estimates when sales are recognized and bases warranty estimates on 2% of sales.

B. April 5: A customer files a warranty claim that Emperor honors in the amount of $100 cash.

C. April 13: Another customer, J. Jones, files a warranty claim that Emperor does not honor due to customer negligence.

D. June 8: J. Jones files a lawsuit requesting damages related to the dishonored warranty in the amount of $1,500. Emperor determines that the lawsuit is likely to end in the plaintiff’s favor and the $1,500 is a reasonable estimate for damages.

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.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Chapter 12, Problem 6PA

Chapter 12, Problem 8PA

Students have asked these similar questions

What is the change in gross profit from 2014 to 2015 ?

What is the change in gross profit from 2014 to 2015 ? Accounting

choose correct option in this account que.

Chapter 12 Solutions

Principles of Accounting Volume 1

Ch. 12 - Which of the following is not considered a current...Ch. 12 - A company regularly purchases materials from a...Ch. 12 - The following is selected financial data from...Ch. 12 - A ski company takes out a $400,000 loan from a...Ch. 12 - Nido Co. has a standing agreement with a supplier...Ch. 12 - A client pays cash in advance for a magazine...Ch. 12 - Lime Co. incurs a $4,000 note with equal principal...Ch. 12 - Which of the following best describes a contingent...Ch. 12 - Blake Department Store sells television sets with...Ch. 12 - What accounts are used to record a contingent...

Additional Business Textbook Solutions

Find more solutions based on key concepts

Sales Taxes Payable. Eaton Technology operates retail stores throughout the Instate area The companys sales are...

Intermediate Accounting (2nd Edition)

To what does the lifetime value of the customer refer, and how is it calculated?

MARKETING:REAL PEOPLE,REAL CHOICES

Real options and its types. Introduction: The net present value is the variation between present cash inflows v...

Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)

S6-2 Determining inventory costing methods Ward Hard ware does not expect costs to change dramatically and want...

Horngren's Financial & Managerial Accounting, The Financial Chapters (Book & Access Card)

What is the relationship between management by exception and variance analysis?

Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)

The way to evaluate a project’s unlevered cost of capital when the project’s risk varies from that of a firm. I...

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.