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Olin [163]
3 years ago
14

Because of a defect discovered in its seat belts in December Year 1, an automobile manufacturer believes it is probable that it

will be required to recall its products. The final decision on the recall is expected to be made in March Year 2 and is estimated to be US $2.5 million. How should this information be reported in the December 31, Year 1, financial statements?
Business
1 answer:
Anna [14]3 years ago
4 0

Answer:

Contingent liabilities refer to those obligations which might arise in the near future based upon the happening or non happening of a certain event and it's outcome.

Such liabilities are recorded if there is likeliness of an event happening and when they can be reasonably quantified and estimated.

In the given case, the automobile manufacturer will probably be required to recall it's products. The amount can be estimated.

In such cases, such expense is to be recognized in the income statement and at the same time a liability for such expenses needs to be created in the balance sheet. Product recall refers to replacement of defective products by the manufacturer. It is similar to a warranty.

Reporting on Dec 31 would be as follows,

Warranty Expense A/C                             Dr. $2.5

    To Warranty Liability                                            $2.5

(being product recall liability for for 2.5 million created)  

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On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 4,100 units of Comfort Office Keyboard to one of its clients
Harrizon [31]

Answer:

Journal Entry

Explanation:

1. There are two obligations in this contract

a. keyboard

b. Customer option for future discount

2. Cash Dr,                                                     $69,700

        To Deferred revenue - keyboard                $66,215

        To Deferred revenue - discount coupon    $3,485

(Being cash is recorded)

Working note:-

Keyboards = 4,100 × $19

= $77,900

Option = $41,000 × (0.25 - 0.05) × 0.50

= $4,100

Allocation

For keyboard

= $77,900 ÷ ($77,900 + 4,100)

= 0.95

Deferred revenue Keyboard = $69,700 × 0.95

= $66,215

Option = 4,100 ÷ ($77,900 + 4,100)

= 0.05

Deferred revenue - discount coupon = $69,700 × 0.05

= $3,485

3. Cash Dr,                                                  $69,700

       To Deferred revenue Keyboard               $69,700

(Being cash is recorded)

4 0
3 years ago
Describe the basic rights of common stockholders. What are the key differences between common and preferred stock?
BARSIC [14]

Answer:

Some rights of common stockholders are given below.

Voting power on major issues.

Ownership in a portion of the company.

The Right to transfer ownership.

Right to receive declared Dividends.

Opportunity to inspect corporate books, minutes file and other records.

The right to sue for wrongful acts.

Right to attend AGM.

Differences between common and preferred stock

Preferred stock have no voting right while common stock holders have voting right.

When interest rates rise, the value of the preferred stock declines, and vice versa.  With common stocks, however, the value of shares is regulated by demand and supply of the market participants.

Common stockholder has right to participate in net asset of company in case of winding up. Preferred stock holder has no such right.

Company profitability have direct effect on wealth of common stockholder but not of preferred stock holder.

7 0
3 years ago
Complete the following sentence about margins and alignment with the best choices. Business letters and memos usually have margi
Dovator [93]

Answer:

The answer is 1 to 1 1/4

Explanation:

The side, top and bottom limits are supposed to be 1 to 1 1/4 inches means the general default settings in programs such as Microsoft Word. One-page letters and memos should be vertically centered. Business letter writing margins should be about 1" all around.

4 0
3 years ago
Describe a social enterprise
adelina 88 [10]

A social enterprise is a  business that tries to solve

social problems, improve  people’s lives, or the environment.

Social enterprises are  businesses. They produce goods and services that earn money and  make profits like any business but they are working to make a  bigger difference, reinvesting  the profits they make to do more  good.

8 0
3 years ago
M. Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No divi
Andru [333]

Answer:

$135000

Explanation:

Given: Outstanding cumulative preferred stock of 10000 shares of 8% at $100

            Dividend paid= $375000.

Now, calculating preferred stock.

Preferred stock= (10000 shares\times $100\times 8\%)= \$ 80000

∴ Preferred stock= $80000

Cumulative dividend paid to shareholder= (80000\times 2 + 80000) = \$ 240000.

∴ Cumulative dividend paid to shareholder= $240000

Next, computing the amount of dividends will common stockholder receive.

Total dividend paid= $375000.  

Dividend received by common stockholder= (\textrm {Total dividend paid - cumulative dividend paid})

⇒ Dividend received by common stockholder= (375000-240000)= \$ 135000

∴ $135000 dividend will be received by common stockholder.    

7 0
3 years ago
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