currentliabilitiesandcontingencies.pptVIP

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The bonus is based on the corporation’s income after deducting income taxes, but before deducting the bonus. The bonus is based on the corporation’s net income after deducting both the bonus and the income taxes. Alternative Methods Bonus Obligations * Current Liabilities Requiring Amounts to be Estimated * Ezzell Company closes its books annually each December 31. The fiscal year for the town and county in which the firm is located ends on June 30. The estimated property taxes for the period July 1, 2010 to June 30, 2011, are $7,200. The tax bill is mailed in October with a requirement that the tax be paid before December 31, 2010. The tax bill reported an actual tax of $7,290, and the company pays this amount on October 31, 2010. Property Taxes * Three Monthly Entries: July 31–September 30, 2010 Property Tax Expense ($7,200 ÷ 12) 600 Property Taxes Payable 600 October 31, 2010: Payment of Property Taxes Property Taxes Payable 1,800 Prepaid Property Taxes 5,490 Cash 7,290 Three Monthly Entries: October 31–December 31, 2010 Property Tax Expense 610 Prepaid Property Taxes 610 Property Taxes * Cash or Accounts Receivable ($6,000 × 200) 1,200,000 Sales 1,200,000 Warranty cost per machine is estimated at $150. Warranty Expense ($150 × 200) 30,000 Estimated Liability under Warranties 30,000 Expense Warranty Accrual Method Anglee Machinery Corporation begins production on a new machine in April 2010 and sells 200 of these machines at $6,000 each by December 31, 2010. Warranty Obligations * The corporation spent $5,000 in 2010 to fulfill warranty agreements for the 200 machines. Estimated Liability under Warranties 5,000 Cash (or other assets) 5,000 The corporation spent $25,150 in 2011 to fulfill the warranty agreements for the 200 machines sold in 2010. Estimated Liability under Warranties 25,000 Warranty Expense 150 Cash (or other assets) 25,150 Warran