Potter Inc., a home improvement and home decorating company, had the following events occur throughout the year 2015. Potter?s fiscal year ends on December 31, 2015 and their financial statements were issued on March 15, 2016.

Potter Inc., a home improvement and home decorating company, had the following events occur throughout the year 2015. Potter's fiscal year ends on December 31, 2015 and their financial statements were issued on March 15, 2016. A. Potter owned two warehouses next to its corporate office. Given that they were only using one of the warehouses for operations, they rented the other one to Spiegel Corp for $54,000 a year. The rental period is for ten years and Spiegel must prepay a year's worth of rent every April 1. B. On October 12, 2015, Potter was sued for $150,000 by a former employee who claimed wrongful termination. Potter's lawyer indicated that a loss was reasonably possible and that a judge would most likely deem the amount fair (and therefore, probable), should the lawsuit go to court. C. Potter had $200,000 of notes payable due on February 2, 2016. On January 15, 2016 they issued $150,000 of common stock and used the proceeds, along with $50,000 of cash on hand, to repay the loan. D. Potter offers a one-year warranty on its appliances and outdoor equipment. Based on past experience, Potter estimates its warranty expense to be 2% of sales. Sales of appliances and lawn equipment during 2015 were $1,500,000. The company paid $12,000 in warranty costs for the year. (Assume the accrual method is used). E. On December 3, 2015, Potter initiated a lawsuit in the amount of $400,000 against a former employee for violating a non-compete clause. It is probable that Potter will win the lawsuit and the amount is deemed reasonably possible. F. On December 20, 2015, Potter declared $40,000 in cash dividends to be paid on January 27,2016. They also declared 80,000 in stock dividends to employees as bonus compensation. The stock dividends will be distributed on January 20, 2016. (Please refer to the archive/additional problems to see how to account for this). G. On November 1, 2015, Potter borrowed $50,000 by signing a 12-month note bearing interest at 8%. Interest is payable in full at maturity on October 31, 2016. H. In May of 2015, Potter became involved in a tax dispute with the IRS. At December 15, the tax attorney for Potter indicated that an unfavorable outcome to the dispute was probable. The tax liability was estimated to be $450,000, but could be as high as $600,000. On April 5, 2016, Potter accepted an IRS settlement offer of $500,000. (Please review the chat for information on how to record this). I. In an attempt to increase revenue during the holiday months, Potter offers gift cards for sale during the months of October - February. Gift card sales for each month were: October: $15,000, November: $40,000, December: $65,000, January: $50,000 and February: $18,000. Gift cards are only good for up to one year after purchase, after which time they expire (become broken) and the customer can no longer redeem them. For the sake of simplicity, assume all gift cards were sold on the last day of each respective month. Redemption of gift cards sold each month were as follows: October: $10,000, November: $25,000, December: $40,000, January: $22,000, February: $5,000. J. Potter collects 6 percent sales tax from customers for all sales and remits each month's collections to the state on the 20th of the month following the sale. December sales totaled $473,290, including sales tax for the month. K. On June 1, Potter purchased a new production facility. On that date, Potter obtained a 10-year, $600,000, 8% mortgage from Atlas Bank to help finance the purchase. (Assume simple interest and, for the sake of simplicity, that payment is due on May 31 of each year). L. Potter has 80 employees who each work eight hour days and are paid hourly. On January 1, 2014, the company began a program of granting its employees 10 days paid vacation each year and one sick day per month. An employee who leaves the company is paid for unused vacation pay; however, sick time does not vest (meaning that the employee is not entitled to be paid for unused sick days if they leave the company). No employee retired or left the company in years 2014 or 2015. Vacation days earned in 2014 may first be taken on January 1, 2015. Below is a breakdown of the days earned/used by the employees: Year 2014 2015 Hourly Wages $12.50 $14.00 Vacation Days Earned by each employee Vacation Days Used by each employee 10 10 0 8 Sick Days Used by each employee 7 9 Potter has chosen to accrue the liability for compensated absences at the current rates of pay that are in effect when the compensated time is earned. (Please see the \"additional problems\" for a clearer example of how to work this question). M. Potter estimates bad debts to be 2% of credit sales. Total sales for the year were $3,800,000, of which 85% were credit sales. At the beginning of the year, Potter had a credit balance of $36,000 in the Allowance for Doubtful (Uncollectible) Accounts. Throughout the year, $27,000 of receivables were deemed uncollectible and written off. Instructions: 1. For each scenario, determine the amount of current liability that should be reported. Prepare any necessary entries to record the current liability for each situation. 2. If an amount from the list above is not included in the current liabilities section, indicate why it is not included in current liabilities and, if applicable, how it should be accounted for