Norma Smith is the controller of Baylor Corporation and is responsible for the preparation of the year-end financial statements. The following transactions occurred during the year.
(a) On December 20, 2007, an employee filed a legal action against Baylor for $100,000 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote.
(b) Bonuses to key employees based on net income for 2007 are estimated to be $150,000.
(c) On December 1, 2007, the company borrowed $600,000 at 8% per year. Interest is paid quarterly.
(d) Credit sales for the year amounted to $10,000,000. Baylor's expense provision for doubtful accounts is estimated to be 3% of credit sales.
(e) On December 15, 2007, the company declared a $2.00 per share dividend on the 40,000 shares of common stock outstanding, to be paid on January 5, 2008.
(f) During the year, customer advances of $160,000 were received; $50,000 of this amount was earned by December 31, 2007.
For each item above, indicate the dollar amount to be reported as a current liability. If a liability is not reported, explain why.
(a) No current liability needs to be recorded. Since the likelihood of payment is remote, there is no need to record any liability.
(b) The full amount of $150,000 needs to be recorded as current liability. This is an estimated amount that ...
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