Chapter K, Problem 1E

(a)

To determine

Other significant liabilities

Other significant liabilities are liabilities other than current and long-term liabilities. These liabilities have a significant impact on the future cash flows and financial position of the company. Contingent liabilities, lease liabilities and additional liabilities for employee fringe benefits are the examples of other significant liabilities.

Contingent liability

The contingent liability is not treated as a liability of the company on the date of the balance sheet but it may become liabilities in the future date on the happening

Warranty Liability:

It is a contingent liability which the company records the repairs expenses and cost of replacement that is incurred for the goods that are sold. The company records liability based on the past experience of the company in providing repairs for the products sold.

The estimated warranty liability at December 31 for the units sold in November and December.

(b)

To determine

To Prepare: The journal entries to record the estimated liability for warranties, and the costs in honoring warranty claims.

(c)

To determine

To Prepare: The journal for honoring of 500 warranty contracts in January at an average cost of $15.