Question 1

Stella Inc., which prepares annual financial statements, is preparing adjusting entries on December 31. Analysis indicates the following:
1. The company is the defendant in an employee discrimination lawsuit involving $ 50,000 of damages. Legal counsel believes it is unlikely that the company will have to pay any damages.
2. December 31 is a Friday. The employees of the company have been paid on Monday, December 27 for the previous week which ended on Friday, December 24. The company employs 30 people who earn $ 80 per day and 15 people who earn $ 120 per day. All employees work 5-day weeks.
3. Employees are entitled to one day's vacation for each month worked. All employees described above in 2. worked the month of December.
4. The company is a defendant in a $ 750,000 product liability lawsuit. Legal counsel believes the company probably will have to pay the amount in full.
5. On November 1, Fiddler signed a $ 10,000, 6-month, 8% note payable. No interest has been accrued to date.
Instructions
Prepare any adjusting entries necessary at the end of the year.

Accepted Answer

The answer of Stella Inc., which prepares annual financial statements,...

Question 2

Walters Accounting Company receives its annual property tax bill for the calendar year on May 1, 2018. The bill is for $ 32,000 and is payable on June 30, 2018. Walters paid the bill on June 30, 2018. The company prepares quarterly financial statements and had initially estimated that its 2018 property taxes would be $ 30,000.
Instructions
Prepare all the required journal entries for 2018 related to the property taxes, including quarterly accruals.

Accepted Answer

The answer of Walters Accounting Company receives its annual property...

Question 3

Merrygold Industrial purchased equipment costing $ 610,000 on September 30, 2021, by paying 10% down and signing a 6%, 6-month note payable for the balance.
Instructions
a) Prepare journal entries to record the purchase of the equipment, the accrual of interest on December 31, and the payment of the note at maturity. Merrygold computes interest based on the number of months outstanding.
b) Determine the balance of any liabilities associated with this transaction as at December 31, 2021.

Accepted Answer

The answer of Merrygold Industrial purchased equipment costing $ 610,000...

Question 4

On January 30, 2021, Titan Techniques gave Matzushibi Motors a 90-day, 8%, $ 80,000 note payable to extend a past due account payable. Titan has a March 31 year end.
Instructions
Prepare the year-end adjusting entry to accrue interest and record payment of the note on April 30, 2021.

Accepted Answer

The answer of On January 30, 2021, Titan Techniques gave...

Question 5

City Wok Inc. paid $ 5,600 for property taxes in the 2020 calendar year. In 2021, City Wok Inc. receives its property tax bill on May 1 for $ 6,200 which is payable on June 30, 2021.
Instructions
Calculate the prepaid or property taxes payable that City Wok Inc. will report on its balance sheet if City Wok Inc.'s year end is
a) February 28, 2021
b) May 31, 2021
c) September 30, 2021
d) December 31, 2021

Accepted Answer

The answer of City Wok Inc. paid $ 5,600 for...

Question 6

During April 2021, Crowe Company incurred the following transactions. This is Crowe's first period of operations, and they plan to use the periodic method of accounting for inventory. Crowe reports under ASPE.
Apr. 1 Purchased a new automobile for $ 36,500; the automobile was paid for with a 2-year 5% note payable. Interest is due monthly on the 1st day of each month and the principal due as follows: 50% due in 1 year, the remainder due in 2 years.
Apr. 5 Sold merchandise to Customer A on account for $ 72,000 plus 13% HST; terms n/30.
Apr. 6 Customer A returns one-half of the merchandise purchased on Apr 5 and receives a credit on account.
Apr. 13 Customer A paid their account balance in full.
Apr. 25 Sold merchandise to Customer B for $ 102,900 plus 13% HST; terms n/30.
Apr. 28 Received $ 22,000 from Customer C for services to be provided in May.
Apr. 30 Recorded any adjusting entries required related to April transactions.
In addition to liabilities arising from the above transactions, Crowe's Accounts Payable balance at April 30, 2021 is $ 65,000.
Instructions
a) Record the above transactions.
b) Prepare the current liabilities portion of Crowe's balance sheet at April 30, 2021.

Accepted Answer

The answer of During April 2021, Crowe Company incurred the...

Question 7

Duane Herman sells Instructions
a) Prepare the journal entry to record the repairs made under warranty.
b) Prepare the journal entry to record the estimated warranty expense for the year. Determine the balance in the Warranty Liability account at the end of the year.

Accepted Answer

The answer of Duane Herman sells Instructions
a) Prepare the journal...

Question 8

Milner Company is preparing adjusting entries at December 31. An analysis reveals the following:
1. During December, Milner Company sold 8,900 units of a product that carries a 60-day warranty. The sales for this product totalled $ 200,000. The company expects 5% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $ 30.
2. The company has been sued by a disgruntled employee. Legal counsel believes it is likely that the company will have to pay $ 150,000 in damages.
3. The company has been named as one of several defendants in a $ 350,000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages.
4. During December, ten employees earn vacation pay at a rate of 1 day per month. Their average daily wage is $ 160 per employee.
Instructions
Prepare adjusting entries, if required, for each of the four items.

Accepted Answer

The answer of Milner Company is preparing adjusting entries at...

Question 9

Below are several accounting transactions recorded by Lucy, accounting clerk for B&B Industrial.
1.  To setup a liability in which we are being sued for $ 500,000. The lawyers say it is unlikely that we will have to pay out this amount and the lawsuit will most likely be dismissed. I have set up the amount based on the best reasonable estimate. Even if the lawsuit is dismissed, this event will have a substantial negative effect on the company's financial position.
2. No entry
B&B Industrial provided a guarantee on a loan for the company's owner. The owner needed to obtain a large loan for medical purposes. No entry needed to account for the loan guarantee.
3. No entry
No entry needed to set up the reduction in wages that may be incurred due to employees going on strike.
4.  To record the decline in sales due to a recession
5.  To set up the amount that will be received when we win our lawsuit.
6. No Entry
No entry created for a lawsuit that we will most likely lose because a reasonable amount cannot be estimated.
Instructions
For each transaction, determine if the accounting clerk correctly recorded the transaction. If you disagree, provide the correct transaction or disclosure requirement.

Accepted Answer

The answer of Below are several accounting transactions recorded by...

Question 10

Sean Screen Manufacturing began operations in January 2021. Sean manufactures and sells two different computer monitors.
Monitor A is a flat panel high-definition monitor, which carries a two-year manufacturer's warranty against defects in workmanship. Sean's management project that 6% of the monitors will require repair during the first year of the warranty while approximately 8% will require repair during the second year of the warranty. Monitor A sells for $ 400. The average cost to repair a monitor is $ 80.
Monitor B is a regular LED monitor that retails for $ 150. Sean has entered into an agreement with a local electronics firm who charges Sean $ 20 per monitor sold and then covers all warranty costs related to this monitor.
Sales and warranty information for 2021 is as follows:
1. Sold 2,000 monitors (800 monitor A and 1,200 monitor B); all sales were on account.
2. Actual warranty expenditures for monitor A were $ 4,000.
Instructions
a) Prepare journal entries that summarize the sales and any aspects of the warranty for 2021.
b) Determine the balance in the Warranty Liability account at the end of 2021.

Accepted Answer

The answer of Sean Screen Manufacturing began operations in January...

Question 11

Dejong's Dry Cleaning had the following events occur during December, 2021. Dejong reports under ASPE.
1. Dejong signed a $ 40,000 loan guarantee on behalf of Dejong Junior's. At December 31, Junior's had drawn $ 10,000 of loan advances. Junior's has sufficient assets to cover its liabilities.
2. Dejong was sued by an irate customer who said the trousers that Dejong had returned to him belonged to someone else. The customer is claiming $ 10,000,000 in damages for distress because he mistakenly wore the ill-fitting trousers to work and suffered discomfort and embarrassment as a result. Dejong's lawyer has advised them that the likelihood of this claim succeeding is nil, and has offered to defend them at no charge. The Dejongs have already paid the claimant $ 100 for replacement of the missing trousers.
3. Dejong was sued for wrongful dismissal by a former employee. The employee is claiming $ 2,000 in lost wages. Dejong's lawyer has advised them that the claim, if taken to trial, is likely to be upheld.
4. In early December, some dry cleaning fluid spilled and damaged equipment valued at $ 5,600. Dejong replaced the equipment, which is insured, and expects their insurance policy will reimburse at least $ 5,000 of the cost and possibly the entire amount. However, the exact amount covered by insurance has not yet been determined.
Instructions
For each of the four situations above, evaluate the likelihood and measurability of any losses that Dejong may face. Indicate if any liability should be recorded or disclosed in Dejong's December 31, 2021, financial statements.

Accepted Answer

The answer of Dejong's Dry Cleaning had the following events...

Question 12

Amber Industries, a local concrete manufacturer, has encountered several situations during the 2021 fiscal year. The company follows ASPE. Identify whether each of the following possible contingencies should be recorded, disclosed, or not reported:
1. Amber is being sued by the municipality of Huntington for contaminating the town's primary water source. If Amber is found responsible, the company will be required to remedy the waterway. Amber's legal counsel believes there is a high likelihood that the company will be unsuccessful defending the suit. A specialist has estimated the restoration will cost between $ 1 million and $ 1.5 million.
2. Amber has guaranteed the debt of a related company in the amount of $ 2 million. The related company is currently in good financial health and is not intending to rely on Amber's guarantee.
3. Amber has a history of lawsuits and has been found liable at least once in each of the past 5 years. Although Amber has not been sued in the current year, management would like to record a $ 50,000 provision for future lawsuits, which is the average payout over the past few years.
4. The government may expropriate Amber's assets so that a new highway can be built. So far, there have been no discussions about exact amount but the government has assured Amber that the proceeds will exceed the assets' net book value.
5. Amber is being sued for $ 500,000 for wrongful dismissal of a company executive.

Accepted Answer

The answer of Amber Industries, a local concrete manufacturer, has...

Question 13

Marsh Company had the following transactions during March:
Mar 1 Purchased computer equipment by issuing a $ 16,000, 6-month, 6% note payable. Interest is due at maturity.
Mar 5 Provided services to customers for $ 9,800 plus 13% HST; customers paid cash.
Mar 15 Purchased supplies on account from Grand and Toy for $ 7,500. Supplier terms are 2/10, n/30.
Mar 31 Paid the Grand and Toy account in full.
Instructions
a) Record the transactions.
b) Record any adjusting entries required at March 31 related to these liabilities.

Accepted Answer

The answer of Marsh Company had the following transactions during...

Question 14

Harry Therapeutic Company is located in Leduc, Alberta and is a retailer of hair removal supplies. Beginning inventory is $ 45,000, and Harry uses the perpetual inventory system.
Alberta has GST of 5%. The following transactions took place during the month of September:
Sep 4 Harry purchased $ 35,000 of merchandise from Laser Cosmetics Corp. on account.
Sep 10 Harry sells $ 66,000 of hair removal products to a customer on credit terms n/30. The merchandise cost $ 42,000.
Sep 17 Harry pays for the merchandise purchased on September 4.
Sep 20 Harry receives the amount due from the September 10 sale.
Sep 30 Harry remits the appropriate amount of GST to the government for the month of September.
Instructions
Journalize the transactions above, including 5% GST on normal purchases and sales.

Accepted Answer

The answer of Harry Therapeutic Company is located in Leduc,...

Question 15

Kenny Company billed its customers a total of $ 2,655,500 including HST of $ 305,500 for the month of November.
Instructions
Prepare the general journal entry to record the revenue and related liabilities for the month.

Accepted Answer

The answer of Kenny Company billed its customers a total...

Question 16

Jet Fuel Ltd. has a customer rewards program. For every litre of gas Jet Fuel sells, the customer is awarded one point. Each point is worth $ 0.10 off the purchase of future goods.
During the month of January, Jet Fuel had gas sales of $ 172,000 and sold 144,000 litres of gas. Jet Fuel estimates 60% of the points will be redeemed. During February, the actual value of the points redeemed is $ 7,250.
Instructions
a) Prepare the journal entry for the January sales.
b) Prepare the journal entry for February reflecting the actual loyalty points redemption.

Accepted Answer

The answer of Jet Fuel Ltd. has a customer rewards...

Question 17

On April 1, Cartman Company borrows $ 90,000 from South Park Provincial Bank by signing a 6-month, 6%, interest-bearing note. Cartman's year end is August 31.
Instructions
Prepare the following entries associated with the note payable on the books of Cartman Company:
a) The entry on April 1 when the note was issued.
b) Any adjusting entries necessary on May 31 in order to prepare the quarterly financial statements. Assume no other interest-accrual entries have been made.
c) The adjusting entry at August 31 to accrue interest.
d) The entry to record payment of the note at maturity.

Accepted Answer

The answer of On April 1, Cartman Company borrows $...

Question 18

MoTown Appliances sells built-in ranges for $ 1,400 each. The price includes a one-year warranty. During 2021, the company sells 1,650 ranges. On the basis of past experience, the approximately 4% of units sold will require warranty replacement at an average cost of $ 450 per unit. The actual warranty costs paid by MoTown during 2021 were $ 25,000.
Instructions
a) Prepare journal entries to record the estimated warranty expense and the warranty payments during 2021.
b) Assuming the liability has an unadjusted credit balance of $ 900, what is the 2021 adjusted liability balance?

Accepted Answer

The answer of MoTown Appliances sells built-in ranges for $...

Question 19

During the month of July, Happy Go Lucky Toy Company started a new promotion. The company offered to reward their customers for all sales made on Barbie dolls or Toy Trucks during the month of July. For each sale made, the customer will receive a 2% reward of the sales price, which can be redeemed on future purchases until December of the current year. Happy Go Lucky Toy Company estimates that 50% of the rewards will be redeemed. The stand-alone value of the rewards is $ 3,000. During the month of July, $ 150,000 of Barbie dolls and Toy Trucks were sold. There was $ 455 worth of redemptions in August.
Instructions
a) Prepare the journal entries to record all transactions related to the reward promotion.
b) Identify any liabilities that would be reported on the August 31, 2021, balance sheet.

Accepted Answer

The answer of During the month of July, Happy Go...

Question 20

Freeze Company sells residential freezers for $ 2,150 each. The price includes a two-year warranty. During 2021, the company sells 550 freezers. On the basis of past experience, the warranty costs are estimated to be $ 160 per freezer. The actual warranty costs paid by Freeze during 2021 were $ 55,000.
Instructions
a) Prepare journal entries to record the estimated warranty expense and the warranty payments during 2021.
b) Assuming the liability has an unadjusted credit balance of $ 4,300, what is the 2021 adjusted liability balance?

Accepted Answer

The answer of Freeze Company sells residential freezers for $...

Quiz 2: Current Liabilities and Payroll

On January 30, 2021, Titan Techniques gave Matzushibi Motors a 90-day, 8%, $ 80,000 note payable to extend a past due account payable. Titan has a March 31 year end. Instructions Prepare the year-end adjusting entry to accrue interest and record payment of the note on April 30, 2021.

Duane Herman sells Instructions a) Prepare the journal entry to record the repairs made under warranty. b) Prepare the journal entry to record the estimated warranty expense for the year. Determine the balance in the Warranty Liability account at the end of the year.

Kenny Company billed its customers a total of $ 2,655,500 including HST of $ 305,500 for the month of November. Instructions Prepare the general journal entry to record the revenue and related liabilities for the month.