compensation for the plant. The amount of compensation is less than
the fair market value but exceeds the carrying amount of the plant.
The contingency should be reported
88. In determining whether to accrue employees’ compensation for
future absences, one of the conditions that must be met is that the
employer has an obligation to make payment even if an employee
terminates. This an example of a(n)
89. On October 1, year 1, Fleur Retailers signed a 4-month, 16% note
payable to finance the purchase of holiday merchandise. At that date,
there was no direct method of pricing the merchandise, and the note’s
market rate of interest was 11%. Fleur recorded the purchase at the
note’s face amount. All of the merchandise was sold by December 1,
year 1. Fleur’s year 1 financial statements reported interest payable
and interest expense on the note for 3 months at 16%. All amounts
due on the note were paid February 1, year 2. Fleur’s year 1 cost of
goods sold for the holiday merchandise was
90. Verona Co. had $500,000 in short-term liabilities at the end of the
current year. Verona issued $400,000 of common stock subsequent to
the end of the year, but before the financial statements were issued.
The proceeds from the stock issue were intended to be used to pay the
short-term debt. What amount should Verona report as a short-term
liability on its balance sheet at the end of the current year?
91. Strand, Inc. provides an incentive compensation plan under which
its president receives a bonus equal to 10% of the corporation’s
income in excess of $200,000 before income tax but after deduction
of the bonus. If income before income tax and bonus is $640,000 and
the tax rate is 40%, the amount of the bonus would be
92. In year 1, May Corp. acquired land by paying $75,000 down and
signing a note with a maturity value of $1,000,000. On the note’s due
date, December 31, year 6, May owed $40,000 of accrued interest and
$1,000,000 principal on the note. May was in financial difficulty and
was unable to make any payments. May and the bank agreed to