Listed below are selected events transactions relating to Sage Hill, Inc. for the current year...


Listed below are selected events transactions relating to Sage Hill, Inc. for the current year ending December 31.

Sage Hill manufactures laptop computers for sale in its own stores and for sale by other retailers.

1. On December 1, Sage Hill accepted an order from a new customer, Coronado Computers. Coronado has a questionable credit history, so Sage Hill requires a $11,000 deposit from Coronado in order to begin production on its order.

2. During December, cash sales at Sage Hills retail locations totaled $4,387,000, which includes the 7% sales tax Sage Hill must remit to the state by the fifteenth day of the following month.

3. During the year, Sage Hill was sued by a competitor for a patent violation. The competitor is claiming that Sage Hills liability is $2,650,000. Sage Hills attorneys have advised it that it is probable that the court will find for the company's competitor. The attorneys estimate that the liability under the suit could be as little as $106,000 or as much as $530,000. The attorneys do not believe any amount within this range is a better estimate of Sage Hills liability than any other amount within the range.

4. Sage Hill provides one-year warranties on the laptops it sells. During the year, Sage Hill?s laptop sales totaled $106,000,000. Historically, Sage Hills warranty liability has been one percent of total sales. Sage Hill began the year with a warranty liability balance of $850,000. Warranty expenditures during the year were $820,000 for computers sold in prior years and $254,000 for computers sold during the year. These expenditures were recorded as credits to cash and debits to the warranty liability account. Any remaining warranty liability is expected to relate to computers sold during the current year.


Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. For simplicity, assume that adjusting entries are recorded only once a year on December 31. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.

Contingent Liability:Hi Ngi

A contingent liability is considered as a current liability if the amount is probable and measurable. Both conditions must be fulfilled to be considered as a contingent liability, otherwise, it will only be treated as a provision and will only be disclosed.

Answer and Explanation: 1

Become a member to unlock this answer!

View this answer

Dec. 1Cash11,000
Unearned Revenue 11,000
to record deposit from Coronado.
Dec. 31Cash4,387,000
Tax Expense307,090
Sales ...

See full answer below.

Learn more about this topic:

Contingent Liabilities: Definition & Examples


Chapter 10 / Lesson 4

Contingent liabilities are circumstances where a company may owe obligations to other parties. Explore three common types of contingent liabilities: product recalls, pending lawsuits, and changes in legislation.

Related to this Question

Explore our homework questions and answers library