Defined benefit pension plan terms
1. Obj. 4
In a recent year’s financial statements, Procter & Gamble showed an unfunded pension liability of $5,599 million and a periodic pension cost of $434 million.
Explain the meaning of the $5,599 million unfunded pension liability and the $434 million periodic pension cost.
EX 11-20
Accrued product warranty
1. Obj. 5
Parker Manufacturing Co. warrants its products for one year. The estimated product warranty is 2.5% of sales. Assume that sales were $600,000 for January. In February, a customer received warranty repairs requiring $200 of parts and $110 of labor.
1. Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.
2. Journalize the entry to record the warranty work provided in February.
EX 11-21
Accrued product warranty
1. Obj. 5
General Motors Corporation (GM) disclosed estimated product warranty payable for comparative years as follows:
Presume that GM’s sales were $135,592 million in Year 2 and that the total paid on warranty claims during Year 2 was $3,000 million.
1. Why are short- and long-term estimated warranty liabilities disclosed separately?
2. Provide the journal entry for the Year 2 product warranty expense.
3. What two conditions must be met in order for a product warranty liability to be reported in the financial statements?
EX 11-22
Contingent liabilities
1. Obj. 5
Several months ago, Ayers Industries Inc. experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $240,000. The company is contesting the fine. In addition, an employee is seeking $220,000 in damages related to the spill. Finally, a homeowner has sued the company for $310,000. The homeowner lives 35 miles from the plant but believes that the incident has reduced the home’s resale value by $310,000.
Ayers’ legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $125,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner’s case is much weaker and will be decided in favor of Ayers. Other litigation related to the spill is possible, but the damage amounts are uncertain.
1. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account “Damage Awards and Fines” to recognize the expense for the period.
2. Prepare a note disclosure relating to this incident.
EX 11-23
Quick ratio
1. Obj. 6
Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years:
1. Determine the quick ratio for December 31 of both years.
Answer
Check Figure: Current year: 1.2
2. Interpret the change in the quick ratio between the two balance sheet dates.
EX 11-24
Quick ratio
1. Obj. 6
The current assets and current liabilities for Apple Inc. and HP, Inc., are as follows at the end of a recent fiscal period:]