Contingency Paper 3

1

North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, year 2, North’s unadjusted balance of liability for compensated absences was $21,000. North estimated that there were 150 vacation days and 75 sick days available at December 31, year 2. North’s employees earn an average of $100 per day. In its December 31, year 2 balance sheet, what amount of liability for compensated absences is North required to report?






2

Ross Co. pays all salaried employees on a Monday for the five-day workweek ended the previous Friday. The last payroll recorded for the year ended December 31, year 2, was for the week ended December 25, year 2. The payroll for the week ended January 1, year 3, included regular weekly salaries of $80,000 and vacation pay of $25,000 for vacation time earned in year 2 not taken by December 31, year 2. Ross had accrued a liability of $20,000 for vacation pay at December 31, year 1. In its December 31, year 2 balance sheet, what amount should Ross report as accrued salary and vacation pay?






3

At December 31, year 2, Taos Co. estimates that its employees have earned vacation pay of $100,000. Employees will receive their vacation pay in year 3. Should Taos accrue a liability at December 31, year 2, if the rights to this compensation accumulated over time or if the rights are vested?
Accumulated
Vested






4

If the payment of employees’ compensation for future absences is probable, the amount can be reasonably estimated, and the obligation relates to rights that accumulate, the compensation should be






5

Vadis Co. sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at $30 for each machine sold. When should Vadis recognize these warranty costs?






6

Lute Corporation sells furnaces that include a three-year warranty. Lute can contract with a third party to provide these warranty services. Lute elects the fair value option for reporting financial liabilities. At what amount should Lute record the warranty liability on the balance sheet?






7

Case Cereal Co. frequently distributes coupons to promote new products. On October 1, year 2, Case mailed 1,000,000 coupons for $.45 off each box of cereal purchased. Case expects 120,000 of these coupons to be redeemed before the December 31, year 2, expiration date. It takes thirty days from the redemption date for Case to receive the coupons from the retailers. Case reimburses the retailers an additional $.05 for each coupon redeemed. As of December 31, year 2, Case had paid retailers $25,000 related to these coupons and had 50,000 coupons on hand that had not been processed for payment. What amount should Case report as a liability for coupons in its December 31, year 2 balance sheet?






8

Chemrite Inc. reported a total asset retirement obligation of $350,000 in last year’s balance sheet. This year, Chemrite acquired a new chemical manufacturing facility subject to unconditional retirement obligations. Two measures of the obligation are the discounted cash flow estimate of $82,000 and the undiscounted cash flow estimate of $105,000. Accretion expense equaled $23,000. What amount should Chemrite report for the asset retirement obligation in this year’s balance sheet?






9

Chemrite Inc. reported a total asset retirement obligation of $350,000 in last year’s balance sheet. This year, Chemrite acquired a new chemical manufacturing facility subject to unconditional retirement obligations. Two measures of the obligation are the discounted cash flow estimate of $82,000 and the undiscounted cash flow estimate of $105,000. Accretion expense equaled $23,000. What amount should Chemrite report for the asset retirement obligation in this year’s balance sheet?






10

Under IFRS, a contingency is described as






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