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Survey of Accounting 6th Edition by Warren Solution Manual

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  • ISBN-10 ‏ : ‎ 9781133189121
  • ISBN-13 ‏ : ‎ 978-1133189121

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Survey of Accounting 6th Edition by Warren Solution Manual

CHAPTER 8
LIABILITIES AND STOCKHOLDERS’ EQUITY
CLASS DISCUSSION QUESTIONS
1. Most current liabilities arise from two basic
transactions:
a. Receiving goods and services prior to
making payment
b. Receiving payment prior to delivering
goods and services
2. Short-term notes payable may be issued to
purchase merchandise or other assets or to
satisfy an account payable which was
created earlier.
3. To match revenues and expenses properly,
the liability to cover product warranties
should be recorded in the period during
which the sale of the product is made.
4. When the defective product is repaired, the
repair costs are recorded by decreasing
Product Warranty Payable and decreasing
Cash, Supplies, or another appropriate
account.
5. a. Yes. A contingent liability is one that results from past transactions if certain
events occur in the future. In this case,
redemption of awards by members
represents a future event.
b. A contingent liability should be recorded
when it is probable and can be reasonably estimated. Each year Delta Air
Lines estimates its contingent liability
based on frequent flyer miles flown and
past histories of award redemption.
6. a. (1)
b. (2)
c. (3)
d. (3)
e. (2)
7. If the vacation payment is probable and can
be reasonably estimated, the vacation pay
expense should be recorded during the period in which the vacation privilege is
earned.
8. (1) To pay the face (maturity) amount of the
bonds at a specified date. (2) To pay periodic interest at a specified percentage of
the face amount.
9. a. Less than $40,000,000
b. 1. $40,000,000
2. 8%
3. 6%
4. $40,000,000
10. a. Premium
b. Interest Expense
11. No. Common stock with a higher par is not
necessarily a better investment than common stock with a lower par because par is
an amount assigned to the shares.
12. No. Premium on stock is additional paid-in
capital.
13. a. Unissued stock has never been issued,
but treasury stock has been issued as
fully paid and has subsequently been
reacquired.
b. As a deduction from the total of other
stockholders’ equity accounts.
14. a. It has no effect on revenue or expense.
b. It reduces stockholders’ equity by
$2,250,000.
15. a. It has no effect on revenue.
b. It increases stockholders’ equity by
$2,400,000.
16. The company may not have had enough
cash on hand to pay a dividend on the
common stock, or resources may be
needed for plant expansion, replacement of
facilities, payment of liabilities, and so on.
17. a. No change.
b. Total equity is the same.
18. The primary purpose of a stock split is to
bring about a reduction in the market price
per share and thus to encourage more investors to buy the company’s shares.
200
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
EXERCISES
E8–1
Current liabilities as of March 31, 2013:
Federal income taxes payable ……………………………………………… $ 52,000*
Advances on magazine subscriptions ………………………………….. 840,000**
Total current liabilities ……………………………………………………. $ 892,000
*$130,000 × 40%
**28,000 × $40 × 9/12 = $840,000
The nine months of unfilled subscriptions are a current liability because
Carabiner Co. received payment prior to providing the magazines.

 

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