Exam 11: Current Liabilities and Contingencies

Which statement is correct?

For each independent situation: 1.Moosehead Pool and Skeet Com.'s debt to equity ratio is 1.6: 1 based on its draft financial statements for the year ended December 31,2016.This leverage ratio exceeds the 1.5:1 maximum stipulated in Moosehead's loan agreement pertaining to a $5,000,000 loan maturing on March 15,2019.The loan agreement stipulates that the loan becomes payable on demand upon breach of any of the loan covenants.Moosehead's creditors agreed on December 15,2016 to waive their right to demand payment until December 31,2017 for reason only that the firm's leverage ratio exceeds the stipulated maximum. 2.Guelph Piano Storage Inc.issued a $30,000,30-day,non-interest bearing note to Roland's Crating for storage bins.The market rate of interest for similar transactions is 2.5%. 3.On November 30,2014,Port Meadow Fertilizer Ltd.entered into a non-cancellable agreement to buy 10 tonnes of phosphorus for $1,600 per tonne for delivery on February 28,2015.Phosphorus is a key component of the custom fertilizer that Port Meadow produces.The market price of phosphorus is extremely volatile,as evident by the $1,175 per tonne that it could be acquired for on December 31,2014.Notwithstanding the premium price paid for the phosphorus,the company expects that fertilizer sales will remain profitable.Port Meadow's year-end is December 31,2014. Required: For each of the situations described above,prepare the required journal entry for the underlined entity.If a journal entry is not required,explain why.

Explain how commitments and guarantees are accounted for under accrual accounting.

Indemnities and letters of credit are examples of?

Which statement about sales taxes is correct?

How are "purchase discounts lost" reported in the financial statements?

Which is not an example of a non-financial liability?

Which statement about warranties is correct?

Select transactions and other information pertaining to the Best Place in the World Inc.(BPW)are detailed below. Facts: a.BPW is domiciled in Vancouver,British Columbia and all purchases and sales are made in BC. b.The HST rate in British Columbia is 12%. c.The balances in BPWs HST recoverable account and HST payable account as at March 31,2017,were $7,000 and $18,000,respectively. d.BPW uses a perpetual inventory system. e.Inventory is sold at a 100% mark-up on cost.(Cost of goods sold is 50% of the sales price. ) Select transactions in April 2017: 1.BPW purchased inventory on account at a cost of $17,000 plus HST. 2.BPW purchased equipment on account at a cost of $18,000 plus HST.It paid an additional $600 plus HST for shipping. 3.Cash sales-BPW sold inventory for $45,000 plus HST. 4.Sales on account-BPW sold inventory for $35,000 plus HST. 5.BPW paid the supplier in full for the equipment previously purchased on account. 6.At the end of the month,BPW remitted the net amount of HST owing to the Canada Revenue Agency. Required: Prepare summary journal entries to record the transactions detailed above.

Which of the following is a financial liability?

Which statement about contingencies is correct?

Why is it important to distinguish financial from non-financial liabilities?

Which of the following is true?

What is true regarding royalty fees?

A company purchased inventory from Europe valued at $100,000 euros.The spot rate at the transaction date was C$1.00 = 0.85 Euro.The spot rate on year end date was C$1.00 = 0.80 Euro.When the company paid the supplier 3 months after year end the spot rate was C$1.00 = 0.90 Euro. Provide all necessary journal entries.Round all amounts to nearest dollar.

LMZ Computer Systems Inc.maintains office equipment under contract.The contracts are for labour only;customers must reimburse LMZ for parts.LMZ's rate schedule follows: One year Two years Three years Photocopies \ 220 400 620 Fax machine \ 175 340 440 LMZ's 2018 sales of maintenance agreements is set out below: One year Two years Three years Photocopies 20 12 30 Fax machine 24 20 30 Required: Assuming that sales occurred evenly through the year: a.What amount of revenue will LMZ recognize for the year ended December 31,2018? b.What amount of deferred revenue will LMZ report as a current liability on December 31,2018? c.What amount of deferred revenue will LMZ report as a non-current liability on December 31,2018?

P.A.Whitehorse owns a successful gardening company called Valley Gardening Ltd.(Valley).The company,which has a year end of December 31,2015,has asked you,the company accountant,to prepare a report outlining how the following items should be reported in its financial statements. A.On January 1,2015,Valley took advantage of a vendor-provided financing offer to acquire computer equipment.Valley signed a $30,000 note payable in full on January 1,2017.Interest is payable annually at a rate of 4% per annum.Valley's bank previously advised that it would charge an interest rate of 8% per annum for a loan on similar terms. B.A client of Valley was injured when she tripped on a piece of Valley's equipment that was in her yard.The injured party is suing Valley for $500,000 for pain and suffering and loss of income.Valley's solicitors advise that the company will almost certainly be found liable.Based on previous verdicts,counsel estimates that there is a 50% probability that the courts will award $400,000,and a 50% probability that the judgment will be $200,000. C.Valley has guaranteed $100,000 of the indebtedness of Healthyway Inc.(HWI),a related corporation.HWI has a long record of profitability and the probability of default is thought to be remote. D.Valley's loan agreement with the bank includes a covenant that Valley will maintain its current ratio of no less than 1.30:1.If Valley fails to meet this or any of the other covenants at year-end,all loan facilities become immediately due and payable.It appears that Valley's current ratio at year end will be slightly less than this. Required: Prepare the report.

For each independent situation: 1.A customer sued Vernon Tractor Corp.for $300,000 for breach of contract.Vernon's solicitors advise that they will almost certainly be found liable.Based on previous results,counsel estimates that there is a 70% probability that the courts will award the $300,000 being sought;a 20% probability that $230,000 will be conferred;and a 10% probability that the judgment will be $140,000. 2.Pickering Conveyor and Clutch Ltd.are in the midst of preparing their financial statements for the year ended December 31,2018.Pickering has been in ongoing discussions with its bankers about renewing its $2,500,000 loan maturing on June 30,2019.While nothing had been finalized by year-end,the bank did agree to extend the maturity by five years on January 15,2019. Required: Describe how the event should be dealt with in the financial statements and explain why.Prepare all required journal entries.

Which statement regarding liabilities is not correct under the IFRS Framework?

On May I,2016,British Columbia Brew Supplies Inc.borrowed USS 180,000 from its bank.British Columbia's year-end is December 31,2016.Exchange rates were as follows: Required: Prepare the required journal entries to record receipt of the loan proceeds and for any adjustments required at year-end.