ACC 100 Lecture Notes - Lecture 8: Current Liability, Canada Pension Plan, Unemployment Benefits

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10 Nov 2015

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Used when goods or services are purchased on account from a supplier. Will be paid off within the upcoming 12 months. Good or service owed to a customer in the future due to the past receipt of cash from that customer. Can be either a current liability or a long-term liability depending on when the service or good is due to the customer. The bank sets a maximum loan amount and the business may borrow on the line of credit as needed, but only up to the maximum credit allowed. The bank charges interest on the outstanding balance which the business is required to pay at the end of every month. Set amount of money with a due date and an interest rate. Also called loan payable or bank loan payable. Involves a signed agreement, interest rate, and a set maturity date. Used to record operating line of credit and traditional bank loan.

Related Questions

Liability Transactions The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year: Feb. 15. Purchased merchandise on account from Hood Co., $240,000, terms n/30. Mar. 17. Issued a 60-day, 8% note for $240,000 to Hood Co., on account. May 16 Paid Hood Co. the amount owed on the note of March 17. June 15. Borrowed $142,800 from Acme Bank, issuing a 60-day, 9% note. July 21. Purchased tools by issuing a $78,000, 90-day note to Columbia Supply Co., which discounted the note at the rate of 7%. Aug. 14. Paid Acme Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $142,800. (Journalize both the debit and credit to the notes payable account.) Oct. 15. Paid Acme Bank the amount due on the note of August 14. Oct. 19. Paid Columbia Supply Co. the amount due on the note of July 21. Dec. 1. Purchased office equipment from Mountain Equipment Co. for $96,000, paying $16,000 and issuing a series of ten 6% notes for $8,000 each, coming due at 30-day intervals. Dec. 12. Settled a product liability lawsuit with a customer for $68,000, payable in January. Emerald Bay accrued the loss in a litigation claims payable account. Dec. 31. Paid the amount due Mountain Equipment Co. on the first note in the series issued on December 1. Required: 1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360-day year. If required, round to one decimal place. Date Account Debit Credit Feb. 15 Mar. 17 May 16 June 15 July 21 Aug. 14 Oct. 15 Oct. 19 Dec. 1 Dec. 12 Dec. 31 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $16,600; (b) interest on the nine remaining notes owed to Mountain Equipment Co. Item Account Debit Credit a.

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Liability Transactions

The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year:

Feb. 15.	Purchased merchandise on account from Hood Co., $144,000, terms n/30.
Mar. 17.	Issued a 60-day, 7% note for $144,000 to Hood Co., on account.
May 16.	Paid Hood Co. the amount owed on the note of March 17.
June 15.	Borrowed $157,200 from Acme Bank, issuing a 60-day, 8% note.
July 21.	Purchased tools by issuing a $81,000, 90-day note to Columbia Supply Co., which discounted the note at the rate of 8%.
Aug. 14.	Paid Acme Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $157,200. (Journalize both the debit and credit to the notes payable account.)
Oct. 13.	Paid Acme Bank the amount due on the note of August 14.
Oct. 19.	Paid Columbia Supply Co. the amount due on the note of July 21.
Dec. 1.	Purchased office equipment from Mountain Equipment Co. for $144,000, paying $24,000 and issuing a series of ten 6% notes for $12,000 each, coming due at 30-day intervals.
Dec. 12.	Settled a product liability lawsuit with a customer for $80,000, payable in January. Emerald Bay accrued the loss in a litigation claims payable account.
Dec. 31.	Paid the amount due Mountain Equipment Co. on the first note in the series issued on December 1.

Required:

1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360-day year. If required, round to one decimal place. Don't round the intermediate calculations.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $18,300; (b) interest on the nine remaining notes owed to Mountain Equipment Co.

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NEED ANSWERS ASAP

Question 23

If a resource has been consumed but a bill hasnot been received at the end of the accountingperiod, then

		an expense should be recorded when the bill is received.
		an expense should be recorded when the cash is paid out.
		an adjusting entry should be made recognizing the expense.
		it is optional whether to record the expense before the bill isreceived.

3 points

Question 24

Prepaid expenses are

		paid and recorded in an asset account before they are used orconsumed.
		paid and recorded in an asset account after they are used orconsumed.
		incurred but not yet paid or recorded.
		incurred and already paid or recorded.

3 points

Question 25

If a business has received cash in advance of services performedand credits a liability account, the adjusting entry needed afterthe services are performed will be

		debit Unearned Service Revenue and credit Cash.
		debit Unearned Service Revenue and credit Service Revenue.
		debit Unearned Service Revenue and credit Prepaid Expense.
		debit Unearned Service Revenue and credit AccountsReceivable.

3 points

Question 26

The preparation of adjusting entries is

		straight forward because the accounts that need adjustment willbe out of balance.
		often an involved process requiring the skills of aprofessional.
		only required for accounts that do not have a normalbalance.
		optional when financial statements are prepared.

3 points

Question 27

On January 1 of the current year, Doolittle Company purchasedfurniture for $7,560. The company expects to use the furniture for3 years. The asset has no salvage value. The book value of thefurniture at December 31of this year is

		$0.
		$2,520.
		$5,040.
		$7,560.

3 points

Question 28

Husker Du Supplies Inc. purchased a 12-month insurance policy onMarch 1 of the current year for $1,800. At March 31, the adjustingjournal entry to record expiration of this asset will include a

		debit to Prepaid Insurance and a credit to Cash for $1,800.
		debit to Prepaid Insurance and a credit to Insurance Expense for$200.
		debit to Insurance Expense and a credit to Prepaid Insurance for$150.
		debit to Insurance Expense and a credit to Cash for $150.

ACC 100 Lecture Notes - Lecture 8: Current Liability, Canada Pension Plan, Unemployment Benefits

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