9.8 Cumulative Questions
1) Atrium Co. sells appliances and offers a one-year warranty to repair or replace any products that are defective. While the company is certain that some products will be defective, they are not certain of the number or expected cost. Identify the category of the liability and explain how it should be classified on the balance sheet.
2) ABC Co. has a $100,000 pending lawsuit which is expected to be settled in the next 18 months. The company's lawyers are virtually certain that ABC Co. will lose the case. Identify the category of the liability and explain how it should be classified.
3) Journalize the following transactions for Southport Company:
April 1, 2012 Bought an $11,000 machine on a month, 9% note. The machine has
a useful life of five years and is depreciated on a straight-line basis.
Dec 31, 2012 Recorded accrued interest on the note and depreciation on the machine.
April 1, 2013 Paid note from April 1, 2011.