Determine if a liability should be recorded in each of the following cases involving the Soft-Wear Manufacturing Company. If there is no liability, explain how the item should be recorded.
A. The company guarantees to repair or replace any of its products that are defective.
B. The company estimates that some customers will not pay for merchandise purchased on credit.
C. The company obtains an asset and signs a lease that extends for one-third of the useful life of the asset.
D. The company is being investigated for potential pollution problems by the Environmental Protection Agency. The company’s engineers believe it is likely that the company will be held responsible for an expensive cleanup activity.
E. The company has issued bonds that are maturing at the end of the current month.
F. The company is being sued by an unhappy customer. The case has not yet come to court.
G. The company has declared a 20% stock dividend.
H. The company has declared a $0.25 cash dividend to be paid on all outstanding shares.
I. The preferred stock is cumulative and dividends have not been paid for three years.
J. The company has a noncontrolling interest of 3%.
K. The company has bonds outstanding that are convertible into common stock. The company’s accountants believe that bond holders are likely to convert their bonds because the company has performed exceptionally well this year.
L. Stock options have been issued to the company’s executives. The options have not yet been exercised.