M13-9 Morgan Company determined that (1) it has a material obligation relating to employees’ rights to receive compensation for future absences attributable to employees’ services already rendered, (2) the obligation relates to rights that vest, and (3) payment of the compensation is probable. The amount of Morgan’s obligation as of December 31, 2007 is reasonably estimated for the following employee benefits:

Vacation pay      $100,000 Holiday pay                         25,000

What total amount should Morgan report as its liability for compensated absences in its December 31, 2007 balance sheet? a.  $0           c.  $100,000

b.  $25,000                                        d.  $125,000

 

Q13:

 

M13-10 Gain contingencies are usually recognized in the income statement when

a.    Realized

b.   Occurrence is reasonably possible and the amount can be reasonably estimated

c.    Occurrence is probable and the amount can be reason- ably estimated

d.   The amount can be reasonably estimated

 

 

E13-1 Accounts Payable and Cash Discounts On January 4, 2007 Dunbar Company purchased, on credit, 2,000 television sets at $500 each. Terms of the purchase were 2/10, n/30. Dunbar paid for one-fifth of these sets within 10 days and the remaining four-fifths by January 31.

Required

Prepare the journal entries on Dunbar Company’s books, assuming that it uses the net price method to record its merchan- dise. (Dunbar uses a perpetual inventory system.)