2 of 8
On February 5, 1993, an employee filed a $2,000,000 lawsuit against Steel Co. for
damages suffered when one of Steel's plants exploded on December 29, 1992. Steel's
legal counsel expects the company will lose the lawsuit and estimates the loss to be
between $500,000 and $1,000,000. The employee has offered to settle the lawsuit out
of court for $900,000, but Steel will not agree to the settlement. In its December 31,
1992, balance sheet, what amount should Steel report as liability from lawsuit?
Mill Co.'s trial balance included the following account balances at December 31,
Bonds payable, due 1993
Discount on bonds payable,
due in 1993
Dividends payable 1/31/1993
Notes payable, due 1994
What amount should be included in the current liability section of Mill's December
31, 1992, balance sheet?
On January 31, 1992, Beau Corp. Issued $300,000 maturity value, 12% bonds for
$300,000 cash. The bonds are dated December 31, 1991, and mature on December
31, 2001. Interest will be paid semiannually on June 30 and December 31. What
amount of accrued interest payable should Beau report in its September 30, 1992,
Lyle, Inc. is preparing its financial statements for the year ended December 31,
1992. Accounts payable amounted to $360,000 before any necessary year end
adjustment related to the following:
At December 31, 1992, Lyle has a $50,000 debit balance in its accounts payable to
Ross, a supplier, resulting from a $50,000 advance payment for goods to be
manufactured to Lyle's specifications.
Checks in the amount of $100,000 were written to vendors and recorded on
December 29, 1992. The checks mailed on January 5, 1993.
What amount should Lyle report as accounts payable in its December 31, 1992,
For the week ended June 30, 1995, Free Co. paid gross wages of $20,000, from which
federal income taxes of $2,500 and FICA were withheld. All wages paid were subject
to FICA tax rates of &% each for employer and employee. Free makes all payroll-
related disbursements form a special payroll checking account. What amount
should Free have deposited in the payroll checking account to cover net payroll and
related payroll taxes for the week ended June 30, 1995?
Eagle Co. has cosigned the mortgage note on the home of its president, guaranteeing
the indebtedness in the event that the president should default. Eagle considers the
likelihood of default to be remote. How should the guarantee be treated in Eagle's
C-Accrued and Disclosed.
D-Neither accrued nor disclosed.
During 1994, Half Co. became involved in a tax dispute with the IRS. At December
31, 1994, Halt's tax advisor believed that an unfavorable outcome was probable. A
reasonable estimate of additional taxes was $200,000 but could be as much as
$300,000. After the 1994 financial statements were issued, Half received and
accepted an IRS settlement offer of $275,000. What amount of accrued liability
should Haft have reported in its December 31, 1994 balance sheet?
Lime Co.'s payroll for the month ended January 31, 1995, is summarized follows:
Federal income tax withheld
All wages paid were subject to FICA. FICA tax rates were 7% each for employee
and employer. Lime remits payroll taxes on the 15th of the following month. In its
financial statements for the month ended January 31, 1995, what amount should
Lime report as total payroll tax liability and as payroll tax expenses?
On March 1, 1993, Fine Co. borrowed $10,000 and signed a two-year note
bearing interest at 12% per annum compounded annually. Interest is payable in
full on February 28, 1995. What amount should Fine report as a liability for
accrued interest at December 31, 1994?
Problem 13 (IVU)
Ivy Co. operates a retail store. All items are sold subject to a 6% state tax, which
Ivy collects and records as sales revenues. Ivy files quarterly sales tax returns when
due, by the 20th day following the end of the sales quarter. However, in accordance
with state requirements, Ivy remits sales tax collected by the 20th day of the month
following any month such collections exceed $500. Ivy takes these payments as
credits on the quarterly sales tax return. The sales taxes paid by Ivy are charged
against sales revenue.
Following is a monthly summary appearing in Ivy's first quarter 1995 sales
In its March 31, 1995, balance sheet, what amount should Ivy report as sales
The discount resulting from the determination of a note payable's present value
should be reported on the balance sheet as a (an).
A. Addition to the face amount of the note.
B. Deferred charge separate from the note.
C. Deferred credit separate from the note.
D. Direct reduction from the face amount of the note.
These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction
of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice.
Unethical use is strictly forbidden.
Problem 3 B $1,000,000.00
Problem 4 A $45,000.00...