| Course | ACC 422 Intermediate Financial Accounting II (ACC/422) |
|---|---|
| Week | 3 |
| Paper type | Current liabilities and contingencies paper |
| Length | about 1,011 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 422 Week 3
Season Passes, Gift Cards and a Skier's Lawsuit: Measuring Current Liabilities and Deciding Which Contingencies to Accrue, Disclose or Ignore at a Composite Ski Resort
[Student Name]
University of Phoenix
ACC/422: Intermediate Financial Accounting II
Week 3 Assignment
[Instructor Name]
[Date]
The resort, the claims and all figures are composites written for a model paper; accounting rules and research findings come from the sources listed.
A composite ski resort operates 22 lifts, a lodge with 140 rooms and three restaurants. Its fiscal year ends April 30, shortly after the lifts close. Most of its cash arrives before the season, when skiers buy passes, and most of its obligations are due within a year. At a ski resort, a large part of what the company owes at year end is not money but mountain: days on the lifts and nights in the lodge that customers have already paid for. This paper measures the resort's current liabilities at April 30 and decides how to report three uncertain claims.
Payables and Short-Term Debt
Accounts payable to food suppliers, fuel dealers and equipment vendors total $1,150,000. A 90-day note payable to the resort's bank for $500,000 at 5% interest, used to fund snowmaking fuel in January, remains unpaid and is a current liability, along with $6,250 of accrued interest.
The resort financed a new high-speed lift with a $6 million term loan repaid in annual principal installments of $600,000. The installment due next December is a current liability; the remaining $4.8 million is long-term. Weygandt et al. (2021) note that failing to reclassify current maturities overstates working capital, which in this case would hide $600,000 of cash the resort must find within the year.
Payroll and Taxes Collected for Governments
Seasonal staff earned $210,000 in the last week of April, to be paid in May. The resort owes federal and state withholdings and its own payroll taxes on those wages, about $58,000. Year-round staff have earned vacation they have not taken; because the right has vested and can be estimated, the resort accrues $96,000 for compensated absences. Sick leave that does not carry over or pay out is not accrued.
The county charges a lodging tax on room nights, which the resort collects from guests and remits monthly. April's collections of $44,000 are owed to the county, not revenue, and are shown as a liability. Sales tax collected in the restaurants, $31,000, is treated the same way.
Season Passes and Advance Bookings
Season passes for next winter went on sale in March at an early price. By April 30, the resort had sold 9,200 passes for $4.6 million. No skiing has been provided, so the entire amount is unearned revenue, a current liability that will become revenue over next season as the resort stands ready to provide access (Financial Accounting Standards Board, 2014). Deposits for summer weddings and conferences at the lodge, $380,000, are also unearned.
Gift Cards
Outstanding gift cards total $520,000. Based on five years of history, about 8% of gift card value is never redeemed. Under the revenue standard, expected breakage is recognized in proportion to the pattern of redemptions. The resort has recognized breakage on cards issued in prior years as those cards were used and carries $478,400 as a liability for cards expected to be redeemed plus the portion of breakage not yet recognized. State unclaimed property laws may require some unredeemed balances to be remitted to the state instead, and the resort's counsel reviews the rules each year.
Contingency One: A Skier's Injury Lawsuit
A skier injured in a collision with a snowmobile operated by a resort employee sued for $2.5 million. The resort's attorneys believe it is probable the resort will be found liable, since the employee was driving on an open trail against policy. They estimate a settlement or judgment between $400,000 and $900,000, with no amount in that range more likely than another. The insurer's deductible is $1 million, so the resort bears the loss.
A loss contingency is accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated (Financial Accounting Standards Board, 1975). Both conditions are met. Because no amount in the range is a better estimate, the resort accrues the minimum, $400,000, debiting a litigation loss and crediting an accrued liability, and it discloses the possibility of up to $500,000 more.
Contingency Two: A Water-Rights Dispute
A downstream ranch has challenged the resort's right to draw water from a creek for snowmaking. If the challenge succeeded, the resort would have to buy water elsewhere at a cost of perhaps $300,000 a year. Counsel considers an adverse ruling reasonably possible but not probable. The resort does not accrue a liability but discloses the nature of the dispute and the possible cost in its notes.
Contingency Three: A Claim Against a Lift Maker
The resort has filed a claim against the manufacturer of a lift gearbox that failed in February, closing a lift for three weeks. Counsel believes recovery of about $700,000 is likely. This is a gain contingency, and it is not recorded until settled. The resort may disclose the claim, taking care not to suggest the recovery is certain.
What Readers Learn From the Notes
Contingency disclosures tell lenders and owners about risks the balance sheet cannot show precisely. Hennes (2014) examined how companies disclose contingent legal liabilities, a setting in which managers decide both whether a loss is probable and how much to say about it, so readers depend heavily on the quality of the note. A note that names the claim, the range and the insurance position lets a lender form its own view; a note that says only that the company is party to various claims does not. The resort's disclosure of the upper end of the lawsuit range and the water dispute gives its lender the information to judge that risk.
Conclusion
The resort's current liabilities go well beyond bills from suppliers. They include the next installment on its lift loan, wages and vacation earned, taxes collected for governments, $4.6 million of season passes paid in advance and gift cards expected to be redeemed. Of three uncertain claims, one was accrued at the low end of its range, one was disclosed and one, a possible gain, was left out of the accounts.
References
Financial Accounting Standards Board. (1975). Accounting for contingencies (Statement of Financial Accounting Standards No. 5).
Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09).
Hennes, K. M. (2014). Disclosure of contingent legal liabilities. Journal of Accounting and Public Policy, 33(1), 32-50. https://doi.org/10.1016/j.jaccpubpol.2013.10.005
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 422 Week 3 instructions ask
The ACC 422 Week 3 task usually asks students to identify, measure and report current liabilities and to account for contingencies. Typical topics include accounts and notes payable, the current maturities of long-term debt, short-term obligations expected to be refinanced, dividends payable, customer advances and unearned revenue, sales and payroll taxes, compensated absences and warranties or premiums. The contingency portion asks students to classify loss contingencies as probable, reasonably possible or remote, decide whether to accrue or disclose and explain why gain contingencies are not recognized. Students provide entries and explanations, often for a described company, and the reasoning should point back to the textbook and the contingency standard in APA form.
How this ACC 422 Week 3 example is built
A ski resort offers a full set of current liabilities and a realistic mix of contingencies. Customers pay for season passes months before the snow falls, gift cards sit unused, seasonal staff earn wages and vacation and the resort collects lodging taxes for the county. The paper takes each liability in turn with its amount and entry. The contingency section applies the same three-part test to three different claims so the reader can see why each lands where it does: an injury lawsuit accrued at the low end of a range, a water-rights dispute disclosed only and a claim against an equipment maker not recorded. The paper closes with what readers learn from contingency notes.
ACC 422 Week 3 grading rubric: where the points go
Faculty usually grade the liabilities week on complete identification of current obligations, correct measurement and a correct contingency analysis. Current maturities of long-term debt should be reclassified, customer advances and gift cards recorded as liabilities until earned and taxes collected for governments shown as owed. For contingencies, papers must apply both conditions for accrual, probable and reasonably estimable, use the low end of a range when no amount is more likely and disclose reasonably possible losses. Explaining why gain contingencies are not recorded shows understanding. Accurate figures, consistent entries and APA references to the standards complete the marks. Some instructors also reward a sentence on how each item affects working capital.
ACC 422 Week 3 help: mistakes to avoid
A frequent ACC 422 Week 3 mistake is recording season pass sales as revenue when collected. Until the resort provides access, the money is a liability. Another error is accruing every lawsuit or none. Test each claim for probability and estimability, and write down the reason. When a range is given and no amount is better than another, accrue the minimum and disclose the rest. Students also record a gain contingency because it seems likely; do not. Remember to move the next year's principal on long-term debt into current liabilities. For gift cards, recognize breakage only in proportion to redemptions if the resort expects it. Finally, explain what a reader learns from the note, and why vague wording helps no one.
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- ACC 422 Week 4: Long-Term Liabilities
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ACC 422 Week 3 questions, answered
What does ACC/422 Week 3 usually cover?
It usually covers current liabilities, such as payables, current maturities of debt, unearned revenue and taxes, and contingencies, including when to accrue or disclose loss contingencies.
Where can I find a free ACC 422 Week 3 sample paper?
Our ski resort example is on this page, with each current liability measured and three contingencies analyzed, and margin notes explaining the calls. Describe your assignment to us and a first draft costs you nothing.
When must a loss contingency be accrued?
When it is probable that a liability has been incurred and the amount can be reasonably estimated. If only a range can be estimated and no amount is more likely, the minimum is accrued.
Are gain contingencies recorded?
No. Gains are not recognized until realized, though a probable gain may be disclosed in the notes if the disclosure is not misleading.
How is gift card breakage recognized?
If a company expects some balances never to be redeemed, it recognizes that expected breakage as revenue in proportion to the pattern of redemptions, rather than all at once or never.
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