AFM391 Study Guide - Final Guide: Current Liability, Overdraft, Loyalty Program

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lemonbeetle804

16 Dec 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM391

Professor

Sasan Saiy

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Document Summary

For each item, indicate by using the letter f that it is a financial liability or n that is a non -financial liability. For obligations that are non -financial in nature, briefly explain why they do not meet the criteria of a financial liability. For obligations that you determine to be n or b, briefly explain why this is the case. 5 yr bank loan in default, has 12 month grace period. Grace period is at least 12 months, given before year end. Current payment is a cl, rest is ll. Bcw is located in charlottetown, pei, and all purchases and sales are made in pei. The balances in bcw"s hst recoverable account and hst payable account as at march 31, 2016, were ,000 and ,000, respectively. Inventory is sold at a 100% markup on cost (cogs is 50% of the sales price).

Related Questions

Identification of Current Liabilities, Contingencies, andCommitments LO3 P 1. Listed below are common types of currentliabilities, contingencies, and commitments:

a. Accounts payable

b. Bank loans and commercial paper

c. Notes payable
d. Dividends payable

e. Sales and excise taxes payable

f. Current portion of long-term debt

g. Payroll liabilities

h. Unearned revenues

i. Income taxes payable

j. Property taxes payable

k. Promotional costs

l. Product warranty liability

m. Vacation pay liability

n. Contingent liability

o. Commitment

Required

1. For each of the following statements, identify the categoryabove to which it gives rise or with which it is most closelyassociated:

1. A company agrees to replace parts of a product ifthey fail.

2. An employee earns one day off for each monthworked.

3. A company signs a contract to lease a buildingfor five years.

4. A company puts discount coupons in thenewspaper.

5. A company agrees to pay insurance costs foremployees.

6. A portion of a mortgage on a building is due thisyear.

7. The board of directors declares a dividend.

8. A company has trade payables.

9. A company has a pending lawsuit against it.

10. A company arranges for a line of credit.

11. A company signs a note due in 60 days.

12. A company operates in a state that has a sales tax.

13. A company earns a profit that is taxable.

14. A company owns buildings that are subject to propertytaxes.

2. Of the items listed from a to o above, which oneswould you not expect to see listed on the balance sheet with adollar amount? Of those items that would be listed on the balancesheet with a dollar amount, which ones would you con- sider toinvolve the most judgment or discretion on the part ofmanagement?

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A current liability is a short-term obligation that is normallyexpected to be settled within one year. For each of the followingevents and transactions that occurred in November 2017, indicatethe title of the current liability account that is affected and theamount that would be reported on a statement of financial positionprepared on December 31, 2017. If an event does not result in acurrent liability, explain why.

a) A customer purchased a ticket from WestJet Airlines For $ 470cash to travel in January 2018. Answer from WestJet'sstandpoint.

b) Hall Construction Company signs a contract with a customerfor the construction of a new $ 500,000 warehouse. At the signing,Hall receives a cheque for $ 50,000 as a deposit on the futureconstruction. Answer from Hall's standpoint.

c) On November 1, 2017, a bank lends $ 10,000 to a company. Theloan carries a 5 percent annual interest rate, and the principaland interest are due in a lump sum on October 31, 2018. Answer fromthe company's standpoint.

d) A popular ski magazine company receives a total of $ 17,800from subscribers on December 31, the last day of its fiscal year.The subscriptions begin in the next fiscal year. Answer from themagazine company's standpoint.

e) On November 20, the campus bookstore receives 900 accountingtextbooks at a cost of $ 70 each. The terms indicate that paymentis due within 30 days of delivery. Answer from the bookstore'sstandpoint.

f) Ziegler Company, a farm equipment company, receives its phonebill at the end of January 2018 for $ 2,300 for January calls. Thebill has not been paid to date.

CURRENT LIABILITIES

Sierra Limited has a December 31 year-end. On December 1stSierra had the following current liabilities listed on its book

Bank overdraft $23,250
Accounts payable 112,500
CPP and EI payable $8,620
Unearned revenues 12,000

During December Sierra incurredthe following transactions:
Dec. 1 Negotiated a $50,000 line of credit with their bank toreplace the bank overdraft. Interest will be charged at 8%, basedon the average balance outstanding during the month, and paid onthe last day of the month.
Dec. 5 Sold goods worth $30,000 on which they had previouslyreceived a $12,000 deposit. The balance was due in 30 days.
Dec.12 Bought $20,000 of inventory on credit, terms of 30days.
Dec.15 Paid amounts due the Government of Canada for the payrollamounts outstanding from November 30.
Dec. 20 Paid $87,000 owing to a supplier. Dec. 21 Received $5,000from a client for work that will be performed in January.
Dec. 21 Sold $56,000 of goods half for cash, half on credit.
Dec 22. Made a $10,000 payment on the line of credit.
Dec. 30 Paid the monthly payroll amounts to employees. The grosspayroll was $16,200. Amounts withheld from the employeesâ chequeswere as follows: â¢ Canada pension plan premiums (CPP) $1,200 â¢Employment insurance premiums (EI) $1,850 â¢ Income tax $2,800 Atthis time, the company also recorded their liability for amountsdue to the government for CPP and EI. Assume the employer mustmatch the employeesâ contribution for both EI and CPP.
Dec. 31 Received notification that a client has sued the companyfor failure to clear the snow away from the front of the businesspremises. Sierraâs lawyer says that it is likely that the companywill be required to pay but she is unable to reasonably determinethe amount of the loss but thinks it will not besignificant.

Required:
a. Prepare all the journal entries required as a result of theabove transactions.
b. Prepare the current liabilitysection of the statement of financial position at December31st.

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AFM391 Study Guide - Final Guide: Current Liability, Overdraft, Loyalty Program

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