Question Details

Excom manufactures high-end whole home electronic 



1.	Xtra Processes is involved with innovative approaches to finding energy reserves. Xtra recently built a facility to extract natural gas at a cost of $15 million. However, Xtra is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $21 million (the present value of which is $8 million). What is the journal entry required to record the asset retirement obligation?
a.	No journal entry required.
b.	Debit Natural Gas Facility for $21,000,000 and credit Asset Retirement Obligation for $21,000,000
c.	Debit Natural Gas Facility for $6,000,000 and credit Asset Retirement Obligation for $6,000,000.
d.	Debit Natural Gas Facility for $8,000,000 and credit Asset Retirement Obligation for $8,000,000.
	2.	Composite provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for four years. During the current year, Composite provided 42,000 such warranty contracts at an average price of $81 each. Related to these contracts, the company spent $400,000 servicing the contracts during the current year and expects to spend $2,100,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts?
a.	$902,000.
b.	$3,002,000.
c.	$400,000.
d.	$450,500.

3.	Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $225 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? (assume accrual method)
a.	$2,800,000.
b.	$4,500,000.
c.	$12,300,000.
d.	$13,500,000.

	4.	A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2014.  Historically, 10% of customers mail in the rebate form.  During 2014, 3,000,000 packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers.  What is the rebate expense and liability, respectively, shown on the 2014 financial statements dated December 31?
a.	$300,000; $300,000
b.	$300,000; $140,000
c.	$140,000; $140,000
d.	$160,000; $140,000

	5.	A company buys an oil rig for $2,000,000 on January 1, 2014.  The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10% is $154,220).  10% is an appropriate interest rate for this company. What expense should be recorded for 2014 as a result of these events?
a.	Depreciation expense of $240,000
b.	Depreciation expense of $200,000 and interest expense of $15,422
c.	Depreciation expense of $200,000 and interest expense of $40,000
d.	Depreciation expense of $215,422 and interest expense of $15,422





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