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Intrmediate Assignment

The document outlines an assignment from Addis Ababa University's College of Business and Economics, focusing on intermediate financial accounting concepts. It discusses the classification of liabilities, specifically current and non-current liabilities, and provides exercises related to liabilities, expenses, and accruals. The assignment includes detailed examples and calculations to illustrate the accounting principles being studied.

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3 views

Intrmediate Assignment

The document outlines an assignment from Addis Ababa University's College of Business and Economics, focusing on intermediate financial accounting concepts. It discusses the classification of liabilities, specifically current and non-current liabilities, and provides exercises related to liabilities, expenses, and accruals. The assignment includes detailed examples and calculations to illustrate the accounting principles being studied.

Uploaded by

getahunbekalu302
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS


DEPARTMENT OF ACCOUNTING AND FINANCE

Intermediate Financial
Accounting II Group
Assignment II

Section 1
Name ID Numbers

Bekalu Getahun UGR/ 2818/15

Abel Eshetu UGR/7949/15

Alazar Fekadu UGR/4444/15

Beimnet Mulu UGR/6798/15

Beidemariam Berhanu UGR/9338/15

Bethel Mengistu UGR/4213/15

Submitted to: Instructor Andualem Z.

Submission Date: 24/05/2025


REVIEW QUESTION

8. Liabilities that are due on demand (callable by the creditor) should be classified as a current
liability. Classification of the debt as current is required because it is a reasonable expectation that
existing working capital will be used to satisfy the debt. Liabilities often become callable by the
creditor when there is a violation of the debt agreement. Only if the creditor agrees before the
reporting date to provide a grace period that extends at least twelve months past the reporting date can
the debt be classified as non-current.

15. Vested rights with respect to compensated absences exist if the employer has an obligation to
make payment to an employee even after terminating his or her employment. Accumulated rights are
those that employees can carry forward to future periods if not used in the period in which earned.
Non-accumulated rights do not carry forward, but lapse if not used within the period earned. Vested
and accumulated rights are accrued by the employer as these are earned by the employee. Non-
accumulated rights are recognized only when the absence commences.

BRIEF EXERCISE 13-4

(a) While Burr has the intent to refinance, Burr did not have the unconditional right to defer payment
as of December 31. The entire amount would be reported as current liability.

(b) While Burr has the intent to refinance, Burr did not have the unconditional right to defer payment
as of December 31. The entire amount would be reported as current liability

BRIEF EXERCISE 13-10


Salaries and Wages Expense.......................................... 42,000
Salaries and Wages Payable (30 X 2 X €700)........ 42,000

BRIEF EXERCISE 13-13

Buchanan should record a litigation accrual on the patent case, since the amount is both reliably
estimable and probable.
This entry will reduce income by $300,000 and Buchanan will report a litigation liability of $300,000.
The $100,000 self-insurance allowance has no impact on income or liabilities.

BRIEF EXERCISE 13-16


Cash (€35,000 + €800)....................................................... 35,800
Warranty Expense............................................................. 1,000
Warranty Liability...................................................... 1,000
Sales Revenue........................................................... 35,000
Unearned Sales Revenue......................................... 800
Warranty Liability.............................................................. 150
Cash ...................... ........ 150

EXERCISE

Exercise13-5
1. Debt that is callable on demand by the lender at any time should be classified as a current liability.
The callable on demand feature overrides the stated maturity of December 31, 2017.

2. When there is a breach of a debt covenant, the debt is normally classified as a current liability.
However, if the company is able to obtain a period of grace from the lender prior to the reporting date
as Mckee did (the agreement was reached on December 8, 2014), the debt should be classified as non-
current.

3. Mckee should classify £100,000 of the obligation as a current maturity of long-term debt (current
liability) and the £300,000 balance as a non current liability.

4. While the maturity of the obligation was extended to February 15, 2017, the agreement was not
reached with the lender until January 15, 2015.
Since the agreement was not in place as of the reporting date (December 31, 2014), the obligation
should be reported as a current liability

EXERCISE 13-14

1. To record premium inventory

Premium Inventory (8,800 X €0.90)........................ 7,920


Cash......................................... ............. 7,920

Total boxes of soap powders sold in 2015............ 120,000


Estimated redemptions (in percent)...................... 60%
Total estimated redemptions.................................. 72,000

2. To record sale of boxes of soap powders and related premium expense and premium liability
Cash (120,000 X €3.30)............................................ 396,000
Premium Expense................................................... 6,480
Premium Liability.............................................. 6,480
Sales Revenue................................................... 396,000
Cost of estimated redemptions (72,000 box tops ÷ 10 X €0.90)................................ €6,480

3. To record actual redemption 44,000 coupons


Premium Liability..................................................... 3,960
Premium Inventory [(44,000 ÷ 10) X €0.90]........................................................ 3,960

PROBLEM 13-6

(a) Cash................................................................................... 294,300


Sales (300 X R$900).................................................
270,000
Unearned Warranty Revenue (270 X R$90)...........................................................
24,300

(b) Current Liabilities:


Unearned Warranty Revenue (R$24,300/3)........................................................... R$8,100
(Note: Warranty costs assumed to be incurred equally over the three-year period)

Non-current Liabilities:
Unearned Warranty Revenue (R$24,300 X 2/3).................................................... R$16,200

(c) Unearned Warranty Revenue (R$24,300 X 1/3)..............8,100


Warranty Revenue................................................... 8,100
Warranty Expense............................................................6,000
Parts Inventory........................................................ 2,000
Accrued Payroll....................................................... 4,000
(d) Current Liabilities:
Unearned Warranty Revenue.................................. R$8,100
Non-current Liabilities:
Unearned Warranty Revenue.................................. R$8,100

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