Question 1

The relationship of current assets to current liabilities is used in evaluating a company's

Accepted Answer

The relationship of current assets to current liabilities, known as the current ratio, is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets. This ratio is crucial for assessing a company's short-term debt-paying ability.

Question 2

The following unadjusted balances are taken from the trial balance of Jackson Equipment at December 31, 2014:  Jackson Equipment sells and installs security systems. Beginning on December 1, 2014, Jackson began offering a 2-year product warranty. Based on research in the industry, Jackson's management believes that 5% of security systems will require some warranty work and that the typical costs for systems requiring warranty work will be $875 during the first year and $325 during the second year. In December, Jackson supplied and installed 80 systems.
Instructions 
a. Calculate and record Jackson's warranty liability at December 31, 2014.
b. Prepare the current liability portion of Jackson's balance sheet at December 31, 2014.

Accepted Answer

The answer of The following unadjusted balances are taken from...

Question 3

Milner Company is preparing adjusting entries at December 31. An analysis reveals the following:
1. During December, Milner Company sold 4,900 units of a product that carries a 60-day warranty. The sales for this product totalled $100,000. The company expects 6% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $15.
2. The company has been sued by a disgruntled employee. Legal counsel believes it is likely that the company will have to pay $200,000 in damages.
3. The company has been named as one of several defendants in a $400,000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages.
Instructions
Prepare adjusting entries, if required, for each of the three items.

Accepted Answer

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

Question 4

Muffin Company issued a five-year, interest-bearing note payable for $50,000 on January 1, 2014. Each January the company is required to pay $10,000 on the note. How will this note be reported on the December 31, 2015 balance sheet?

Accepted Answer

The note will be reported as $30,000 in long-term debt and $10,000 as the portion due within one year. By December 31, 2015, two payments of $10,000 each would have been made, reducing the original amount to $30,000. The next payment due within a year is classified separately.

Question 5

Duane Herman sells exercise machines for home use. The machines carry a 4-year warranty. Past experience indicates that 6% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is $45 for labour and $75 for parts per unit. During 2015, 2,500 exercise machines were sold at an average price of $800. During the year, 60 of the machines that were sold were repaired at the average price per unit. The opening balance in the Warranty Liability account is zero.
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 exercise machines for home...

Question 6

During April 2014, DMZ Company incurred the following transactions. This is DMZ's first period of operations, and they plan to use the periodic method of accounting for inventory. 
 In addition to liabilities arising from the above transactions, DMZ's Accounts Payable balance at April 30, 2014 is $65,000.
Instructions 
a. Record the above transactions.
b. Prepare the current liabilities portion of DMZ's balance sheet at April 30, 2014.

Accepted Answer

The answer of During April 2014, DMZ Company incurred the...

Question 7

Under ASPE, Current Liabilities are usually listed

Accepted Answer

Current Liabilities are usually listed in order of liquidity on the balance sheet. This means that the most liquid assets are listed first, followed by the least liquid assets.

Question 8

On April 1, Hoadley Company borrows $90,000 from Northwest Provincial Bank by signing a 6-month, 6%, interest-bearing note. Hoadley's year end is August 31.
Instructions
Prepare the following entries associated with the note payable on the books of Hoadley 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, Hoadley Company borrows $90,000...

Question 9

The following are all of the accounts with credit balances from Kupidy Company's adjusted trial balance at December 31, 2014:  Other information:
The mortgage is due in monthly principal payments of $1,000 plus interest.
The note payable is a six-month, 10% note, interest due at maturity.
Instructions
Prepare the current liabilities section of Kupidy's December 31, 2014 balance sheet.

Accepted Answer

The answer of The following are all of the accounts...

Question 10

Dejong's Drycleaning had the following events occur during December, 2014: Dejong is reporting 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 drycleaning 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, 2014 financial statements.

Accepted Answer

The answer of Dejong's Drycleaning had the following events occur...

Question 11

During the year, Canada Ski Cross Ltd. instituted a customer rewards program. The company sells skis which are specially used for the latest type of skiing, ski cross. For every $250 of ski cross equipment purchased by a customer, the company will rebate $50 towards the cost of purchasing a ski cross helmet. In January, the company had ski cross equipment sales of $64,000. There were no helmets purchased. In February, there were sales of $32,600 and there were 135 helmets sold.
Instructions
a. Prepare journal entries for January. What is the ending balance in the liability account for the end of January?
b. Prepare journal entries for February. What is the ending balance in the liability account for the end of February?

Accepted Answer

The answer of During the year, Canada Ski Cross Ltd....

Question 12

Hardin Manufacturing began operations in January 2014. Hardin manufactures and sells two different computer monitors.
Monitor A, is a flat panel hi-definition monitor, which carries a two-year manufacturer's warranty against defects in workmanship. Hardin's management project that 8% of the monitors will require repair during the first year of the warranty while approximately 6% 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. Hardin has entered into an agreement with a local electronics firm who charges Hardin $20 per monitor sold and then covers all warranty costs related to this monitor.
Sales and warranty information for 2014 is as follows:
Sold 2,000 monitors (800 monitor A and 1,200 monitor B); all sales were on account.
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 2014.
b. Determine the balance in the Warranty Liability account at the end of 2014.

Accepted Answer

The answer of Hardin Manufacturing began operations in January 2014....

Question 13

Kent Company's December 31, 2014 trial balance includes the following accounts:  Other information:
The mortgage payable is due in annual principal installments of $4,000 per year.
The note payable is due in full in 18 months' time.
Industry average working capital ratio is 2.5:1
Instructions 
a. Prepare the current liabilities section of Kent's December 31, 2014 balance sheet.
b. Calculate and comment on Kent's working capital and current ratio.

Accepted Answer

The answer of Kent Company's December 31, 2014 trial balance...

Question 14

On February 28, 2014, Fidanza Company has the following selected accounts after posting adjusting entries:  Instructions 
a. Prepare the current liability section of Fidanza Company's balance sheet, assuming $25,000 of the mortgage is payable next year. (List liabilities in order of magnitude, with largest first.)
b. Comment on Fidanza's liquidity, assuming total current assets are $400,000.

Accepted Answer

The answer of On February 28, 2014, Fidanza Company has...

Question 15

Elliott Company had the following transactions during March:
Mar $\quad $1$\quad $ Purchased computer equipment by issuing a $15,000, 6-month, 8% note payable. Interest is due at maturity.
Mar$\quad $ 5 $\quad $Provided services to customers for $9,800 plus 5% GST; customers paid cash.
Mar $\quad $15$\quad $ Purchased supplies on account from Grand and Toy for $3,500. Supplier terms are 2/10, n/30.
Mar $\quad $31$\quad $ 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 Elliott Company had the following transactions during...

Question 16

Fiddler Music Company, 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. The company is a defendant in a $750,000 product liability lawsuit. Legal counsel believes the company probably will have to pay the amount requested.
3. 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 Fiddler Music Company, which prepares annual financial...

Question 17

Current maturities of long-term debt

Accepted Answer

Current maturities of long-term debt are classified as current liabilities during the preparation of the balance sheet, without the need for an adjusting entry, as they represent the portion of long-term debt due within the next year.

Question 18

Match between columns
                        Premises: An obligation in the form of a written promissory note
A debt than can reasonably be expected to be paid from current assets
A potential liability that may become an actual liability in the future

Accepted Answer

The Answer of Notes Payable and Current liability and Contingent is...

Quiz 10: Current Liabilities

The relationship of current assets to current liabilities is used in evaluating a company's

Muffin Company issued a five-year, interest-bearing note payable for $50,000 on January 1, 2014. Each January the company is required to pay $10,000 on the note. How will this note be reported on the December 31, 2015 balance sheet?

Under ASPE, Current Liabilities are usually listed

Current maturities of long-term debt

Match the items below by entering the appropriate code letter in the space provided.