Question

Analyzing and Determining Liability AmountsFor each of the following situations, indicate the liability amount, if any, that is reported on the balance sheet of Bloomington Inc. at December 31, 2016.Next to each situation, enter the liability amount reported on Bloomington's balance sheet. If the amount is not reported as a liability, enter zero as your answer.a. Bloomington owes $230,000 at year-end 2016 for inventory purchase. b. Bloomington agreed to purchase a $29,000 drill press in January 2017. c. During November and December of 2016, Bloomington sold products to a customer and warranted them against product failure for 90 days. Estimated costs of honoring this 90-day warranty during 2017 are $4,100. d. Bloomington provides a profit-sharing bonus for its executive equal to 5% of reported pretax annual income. The estimated pretax income for 2016 is $850,000. Bonuses are not paid until January of the following year.

Answer 1

Answer:

(a) It is a liability for Bloomington to pay for the inventory purchase and it is recorded with the amount of $230,000.

(b) It is not a liability for Bloomington because the press is not yet purchased and agreed to be purchased in future. So, the liability is $0.

(c) In case, there is any discrepancy in the products then it is the responsibility of Bloomington to provide some solution. Therefore, the estimated warranted liability is $4,100 and the amount of liability recorded in the balance sheet is $4,100.

(d) The amount of liability recorded in the balance sheet is as follows:

Bonds payable:

= Estimated pretax income × Profit-sharing bonus

= $850,000 × 5%

= $42,500