Give an example of a contingent liability that is reasonably possible or probable ably estimable. How would this type of liability be shown in the accounting re Give an example of a contingent liability that is remote. How is this type of liabili b. bu C. accounting records? 7-3,7-4 Problem 7-29 Current liabilities Expense, 2018 Liabilities The following selected transactions were taken from the books of Ripley Company for20/8 1. On February 1,2018, borrowed $70,000 cash from the local bank. The note had a6 percen rate and was due on June 1, 2018 Cash sales for the year amounted to $240,000 plus sales tax at the rate of 7 percent. 2. ides a 90-day warranty on the merchandise sold. The warranty expense is estimated to Accounting f be I percent of sales. pid the sales tax to the state sales tax agency on $210,000 of the sales. d the note due on June 1 and the related interest. n November 1, 2018, borrowed $20,000 cash from the local bank. The note had a 6 percent in- terest rate and a one-year term to maturity Paid $2,100 in warranty repairs. et? r has filed a lawsuit against Ripley for $1 million for breach of contract. The company of attorney does not believe the suit has merit. Required a. Answer the following questions: ow 1) What amount of cash did Ripley pay for interest during 2018? (2) What amount of interest expense is reported on Ripley's income statement for 2018? (3) What is the amount of warranty expense for 2018? b. Prepare the current liabilities section of the balance sheet at December 31, 2018. c. Show the effect of these transactions on the financial statements using a horizontal statements model like the one below. Use + for increase, for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity lA), or financing activity (FA). The first transaction has been recorded as an example. ExpNet Inc. Cash Flow NA = Liabilities + Equity| Rev.- + FA NA PROBLEM 7-29 a. (1) Cash paid for interest: $ 0,000 x u%x 4112-$ 140 (2) Interest Expense: $1400 Totalinterest Expense $260 70,000 1, . /12 x2%x,112+ (3000 warranty Expense: $a4daxl%2 $2400 .0%,2112: 1Ho0)Caas) 00 b. Interest Payable Sales Tax Payable 6.1 4.3 16800-9700 Bal. 2100 Bal Warranty Payable Notes Payable 3.4 T 2400 -21oe. Bal. 300 5. 6. Bal. Riploy Compay Current Liabilities 2nse 2100 Total Current Liabilities Note: Is there anything that should not be recorded and why? Notas payable should not be recordud becaust an extension oF the normal cadit period for paying amou owid stun retirhs that a Company sign a note, resulting in a transer oethe liabrurty from hl t nctes s4 payable Notes paygb
