Question Details

Flavor Food Company distributes to consumers coupons 



1.	Wooten Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Wooten's lawyer states that it is probable that Wooten will lose the suit and be found liable for a judgment costing Wooten anywhere from $1,600,000 to $8,000,000. However, the lawyer states that the most probable cost is $4,800,000. As a result of the above facts, Wooten should accrue
a.	a loss contingency of $1,600,000 and disclose an additional contingency of up to $6,400,000.
b.	a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000.
c.	a loss contingency of $4,800,000 but not disclose any additional contingency.
d.	no loss contingency but disclose a contingency of $1,600,000 to $8,000,000.

	2.	Holland Company estimates its annual warranty expense as 2% of annual net sales.  The following data relate to the calendar year 2014:
Net sales	$1,500,000
Warranty liability account
	Balance, Dec. 31, 2014	$10,000	debit before adjustment
	Balance, Dec. 31, 2014	20,000	credit after adjustment
		Which one of the following entries was made to record the 2014 estimated warranty expense?(assume the accrual method)
	a.	Warranty Expense 		30,000
			Retained Earnings (prior-period adjustment) 			5,000
			Warranty Liability 			25,000
	b.	Warranty Expense 		25,000
		Retained Earnings (prior-period adjustment) 		5,000
			Warranty Liability 			30,000
	c.	Warranty Expense 		20,000
			Warranty Liability 			20,000
	d.	Warranty Expense 		30,000
			Warranty Liability 			30,000

	3.	In 2014, Pollard Corporation began selling a new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:
First year of warranty			3%
Second year of warranty		5%
		Sales and actual warranty expenditures for 2014 and 2015 are presented below:
	   2014		   2015	
Sales	$500,000	$700,000
Actual warranty expenditures	30,000	50,000

		What is the estimated warranty liability at the end of 2015?(assume the accrual method)
a.	$16,000.
b.	$64,000.
c.	$96,000.
d.	$20,000.

	4.	On January 3, 2014, Benton Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $480,000. On January 4, 2014, this machine was irreparably damaged by Pogo Corp. and became worthless. In October 2014, a court awarded damages of $480,000 against Pogo in favor of Benton. At December 31, 2014, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Benton- attorney, Pogo- appeal will be denied. At December 31, 2014, what amount should Benton accrue for this gain contingency?
a.	$480,000.
b.	$390,000.
c.	$300,000.
d.	$0.
5.	Flavor Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Flavor.  The grocers are reimbursed when they send the coupons to Flavor. In Flavor's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Flavor receives it.  During 2014 Flavor issued two separate series of coupons as follows:
		Consumer	Amount Disbursed
Issued On	Total Value	Expiration Date	as of 12/31/14
	1/1/14	$500,000	6/30/14	$236,000
	7/1/14	720,000	12/31/14	300,000
		The only journal entry recorded to date is: debit to coupon expense and credit to cash of $715,000. The December 31, 2014 balance sheet should include a liability for unredeemed coupons of:
a.	$0.
b.	$60,000.
c.	$124,000.
d.	$360,000.

6.	Presented below is information available for Marley Company.
Current Assets
	Cash	$    4,000
	Short-term investments	65,000
	Accounts receivable	61,000
	Inventory	110,000
	Prepaid expenses	    30,000
		Total current assets	$270,000
Total current liabilities are $100,000. The acid-test ratio for Marley is:
a.	2.80 to 1
b.	2.40 to 1
c.	1.30 to 1
d.	0.69 to 1




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