Exercise 5-10 Norma Smith is the controller of Wildhorse Corporation and is resp
ID: 2541007 • Letter: E
Question
Exercise 5-10 Norma Smith is the controller of Wildhorse Corporation and is responsible for the preparation of the year-end financial statements. that occurred during the year, indicate the dollar amount to be reported as a current For each of the following transactions liability as of December 31, 2017. (Enter O for amou answer field blank.) nts if no current liability is to be reported. Do not leave any Reported as (a) On December 20, 2017, a former employee filed a legal action against Wildhorse for $105,340 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the (b) Bonuses to key employees based on net income for 2017 are estimated to (c) On December 1, 2017, the company borrowed $888,000 at 8% per year. (d) Accounts receivable at December 31, 2017, is $10,115,200. An aging employee is remote be $157,400 Interest is paid quarterly. analysis indicates that Wildhorse's expense provision for doubtful accounts is estimated to be 3% of the receivables balance. (e) On December 15, 2017, the company declared a $2.20 per share dividend on the 41,450 shares of common stock outstanding, to be paid on January 5, 2018. During the year, customer advances of $188,100 were received; $59,800 of this amount was earned by December 31, 2017. (f) Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT LINK TO TEXTExplanation / Answer
SOLUTION
(A) In order for a liability to be recorded or reported for a threatened legal action, the amount must be probable and a reasonably estimated payment. Being that these conditions are not met an accrual adjustment is not needed.
(B) The amount of $157,400 should be recorded as a current liability.
(C) The amount of $5,920 ($888,000 * 8% * 1/12) should be recorded as a current liability for accrued interest. If the $888,000 note payable is to be paid in one year it should be listed as a current liability. If not, the $888,000 note payable would be considered as a long-term liability.
(D) This is not a current liability, No amount is to be reported as current liability.
(E) The amount of $91,190 (41,450 * $2.20) should be recorded as a current liability. The liability is recorded on the date it was declared.
(F) The amount of $128,300 ($188,100 – $59,800) for customer advances should be recorded as a current liability.
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