Acct 311 Final Exam Answers

ACCT 311 Final Exam Answers

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XYZ Company sells appliance service contracts agreeing to repair appliances for a two-year period. XYZ’s past experience is that, of the total dollars spent for repairs on service contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. Receipts from service contract sales for the two years ended December 31, year 2, are as follows:

Year 1 $500,000

Year 2 $600,000

Receipts from contracts are credited to unearned service contract revenue. Assume that all contract sales are made evenly during the year. What amount should XYZ report as unearned service contract revenue at December 31, year 2?

$360,000

$470,000

$480,000

$630,000

A Corp. had the following liabilities at December 31, year 2:

Accounts payable $55,000

Unsecured notes, 8%, due 7/1/Y3 400,000

Accrued expenses 35,000

Contingent liability 450,000

Deferred income tax liability 25,000

Senior bonds, 7%, due 3/31/Y3 1,000,000

The contingent liability is an accrual for possible losses on a $1,000,000 lawsuit filed against A. A’s legal counsel expects the suit to be settled in year 4, and has estimated that A will be liable for damages in the range of $450,000 to $750,000.

The deferred income tax liability is not related to an asset for financial reporting and is expected to reverse in year 4.

What amount should A report in its December 31, year 2 balance sheet for current liabilities?

$515,000

$940,000

$1,490,000

$1,515,000

During year 2, Smith Co. filed suit against West, Inc. seeking damages for patent infringement. At December 31, year 2, Smith’s legal counsel believed that it was probable that Smith would be successful against West for an estimated amount in the range of $75,000 to $150,000, with all amounts in the range considered equally likely. In March year 3, Smith was awarded $100,000 and received full payment thereof. In its...