Question 1

Which statement about sales taxes is correct?

Accepted Answer

A) The consumer is responsible for remitting the tax to the government. 
B) Taxes are uniformly applied to all sale transactions. 
C) Businesses can deduct the GST paid from GST collected. 
D) The same products that are exempt from GST are exempt from PST.

Question 2

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.
Requirement:
Describe how the event should be dealt with in the financial statements and explain why. Prepare all required journal entries.

Accepted Answer

The answer of For each independent situation:
1. A customer sued...

Question 3

Fill in the following chart.
 $\begin{array}{|l|l|l|} 
\hline& \begin{array}{l}
\text { Initial measurement of the } \
\text { liability }
\end{array} & \begin{array}{l}
\text { Subsequent measurement of } \
\text { the liability }
\end{array} \
\hline \text { Non-financial liability } & & \
\hline \text { Financial liability not held } & & \
\text { for trading } & &\\hline
\end{array}$

Accepted Answer

The answer of Fill in the following chart.
 \(\begin{array}{|l|l|l|} 
\hline&...

Question 4

Which statement is not correct about notes payable?

Accepted Answer

A) Notes payable are supported by a written promise to pay. 
B) Non-interest bearing notes are recognized at their fair value. 
C) Non-interest bearing notes are recognized at the transaction price. 
D) Fair value can be estimated by using discounted cash flow.

Question 5

Which statement about warranties is correct?

Accepted Answer

A) Warranties are provisions. 
B) Warranties included with the product sold are accounted for under IAS18. 
C) Warranties are financial liabilities. 
D) Warranties included with the product sold are accounted for under IAS39.

Question 6

A company,using a perpetual inventory system,sells goods on credit for $10,000. The applicable HST rate is 10%. The cost of goods sold was $6,000. Sales taxes are remitted on a monthly basis. Prepare the necessary journal entries for this transaction.

Accepted Answer

The answer of A company,using a perpetual inventory system,sells goods...

Question 7

For a $100,000 trade payable with terms of 2/10,net 45,how much would be reported as "purchase discount lost" under the gross method if a payment was made after 60 days?

Accepted Answer

A) $0 
B) $2,000 
C) $4,500 
D) $10,000

Question 8

Which statement about contingencies is correct?

Accepted Answer

A) If the future outcome is remote but reliably measurable,a provision is recorded. 
B) If the future outcome is remote,but not reliably measurable,disclosure is required. 
C) If the future outcome is remote,but not reliably measurable,no action is required. 
D) If the future outcome is remote,but reliably measurable,disclosure is required.

Question 9

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

Accepted Answer

The answer of Explain how commitments and guarantees are accounted...

Question 10

Consider the following independent situations. The underlined entity is the reporting entity.
1. The Supreme Court of Canada ordered a supplier to pay Towna Haring Inc. $500,000 for breach of contract.
2. Iwas Pharmaceuticals Inc. sued Game Day Agencies Ltd. for $8 million alleging patent infringement. While there may be some substance to Iwas's assertion,Game Day's legal counsel estimates that Iwas's likelihood of success is about 30%.
3. Environment Canada sued Foil Fan Isotopes Ltd. for $18 million seeking to recover the costs of cleaning up Foil Fan's accidental discharge of radioactive materials. Foil Fan acknowledges liability but is disputing the amount,claiming that the actual costs are in the range of$9 million to $12 million. Foil Fan's $18 million environmental insurance policy includes a $6 million deductible clause.
Requirement:
a. For each of the situations,indicate whether the appropriate accounting treatment is to:
 A. Recognize an asset or liability.
B. Disclose the details of the contingency in the notes to the financial statements.
C. Neither provide for the item nor disclose the circumstances in the notes to the financial statements. b. For each situation that requires the recognition of an asset or liability,record the journal entry.

Accepted Answer

The answer of Consider the following independent situations. The underlined...

Question 11

St. John Laurulry (SJL)recently hired Huck as its payable clerk,a position that has been vacant for two months. While the other accounting staff have taken care of the "must do's," there are a number of transactions that have not yet been recorded.
• Nov. 15,2017-SJL purchases $8,000 supplies inventory on account. The terms offered are 2/10,net 30.
• Nov. 22,2017-SJL purchases 10 washing machines. SJL issues a $3,000 non-interest bearing note payable due on 01/15/18.
• Nov. 28,2017-SJL borrows $131,400 from the bank. SJL signs a demand note for this amount and authorizes the bank to take the interest payments from its bank account. Interest is payable monthly at 10% per annum.
• Dec. 18,2017-SJL purchases $1,000 supplies inventory on account. The terms offered are 2/10,net 30.
• Dec. 21,2017-SJL purchases 15 dryers. SJL issues a $25,000 non-interest bearing note payable due on Dec. 21,2018.
• Dec. 22,2017-Huck pays the Nov. 15,2017 and Dec. 18,2017 invoices.
• Dec. 31,2017-Huck processes the payroll for the month. The gross payroll is $80,000; $2,700 is withheld for the employees' Canada Pension Plan and Employment Insurance premiums.
Other Info
• SJL uses the net method to record accounts payable.
• SJL's year-end is Dec. 31 and interim statements are normally prepared on a monthly basis.
• Due to the vacancy in the accounting department,SJL's latest interim statements are for the period ended Oct. 31,2017. The necessary accruals were made at that time.
• The market rate of interest for SJL's short-term borrowings is 10%.
Requirements:
a. Prepare journal entries to record the documented events and the necessary accruals for the months of November and December. Compute interest accruals based on the number of days,rather than months.
b. Contrast the gross and net methods of accounting for trade payables.

Accepted Answer

The answer of St. John Laurulry (SJL)recently hired Huck as...

Question 12

For the following transaction,provide all of the required journal entries from inception to liquidation. Assume a December 31 year end and that the company does not prepare interim statements. Round all amounts to nearest dollar.

Accepted Answer

The answer of For the following transaction,provide all of the...

Question 13

AV Airlines sold a ticket on May 1,2012 for travel on Jun 15,2012 for $1,500. The customer paid at time of booking the flight. Provide the necessary journal entries.

Accepted Answer

The answer of AV Airlines sold a ticket on May...

Question 14

Explain what contingent assets and liabilities are and how these items are accounted for financial reporting purposes.

Accepted Answer

The answer of Explain what contingent assets and liabilities are...

Question 15

It is early in February 2017 and you are conducting the audit of Blast Off Airline's 2016 financial statements. Through discussion with Blast Off's Chief Financial Officer you learn of matters that have not yet been incorporated into the 2016 financial statements:
During 2016,Blast Off began a customer loyalty program. For each aeronautical mile that a passenger travels on a paid flight,the passenger accrues one flight mile. Passengers can redeem accrued flight miles for free air travel. Earned miles do not expire. Blast Off's analysis of its competitors' programs suggests an average redemption rate of 55%. In 2016,Blast Off awarded 50,000,000 flight miles,1,375,000 of which were redeemed. Management estimates the fair value of the flight miles is $540,000.
Requirement:
Prepare the journal entries to record the required adjustments for the above event.

Accepted Answer

The answer of It is early in February 2017 and...

Question 16

Which statement is correct?

Accepted Answer

A) HST payable is a financial liability. 
B) Bank overdraft is a non-financial liability. 
C) Unearned revenue is a non-financial liability. 
D) Unearned subscriptions are a financial liability.

Question 17

Which statement about contingencies is correct?

Accepted Answer

A) If the future outcome is possible and reliably measurable,a provision is recorded. 
B) If the future outcome is probable and reliably measurable,a provision is recorded. 
C) If the future outcome is probable,a provision is recorded even if it is not reliably measurable. 
D) If the future outcome is possible,a provision is recorded even if it is not reliably measurable.

Question 18

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 31,2012 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 2012:
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.
Requirement:
Prepare summary journal entries to record the transactions detailed above.

Accepted Answer

The answer of Select transactions and other information pertaining to...

Question 19

Which is an example of a liability?

Accepted Answer

A) The decision to borrow $150,000 from the ABC Bank on January 15,2012. 
B) Withdrawing $10,000 from the operating line of credit on January 15,2012. 
C) Selecting the supplier to provide the raw materials for the manufacturing process. 
D) Choosing the site for a future plant expansion from a list of several possible choices.

Question 20

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

Accepted Answer

A) As a reduction of sales. 
B) As an increase in liability. 
C) As an increase in inventory. 
D) As an expense item.

Exam 1: Current Liabilities and Contingencies

Which statement about sales taxes is correct?

Which statement is not correct about notes payable?

Which statement about warranties is correct?

A company,using a perpetual inventory system,sells goods on credit for $10,000. The applicable HST rate is 10%. The cost of goods sold was $6,000. Sales taxes are remitted on a monthly basis. Prepare the necessary journal entries for this transaction.

For a $100,000 trade payable with terms of 2/10,net 45,how much would be reported as "purchase discount lost" under the gross method if a payment was made after 60 days?

Which statement about contingencies is correct?

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

For the following transaction,provide all of the required journal entries from inception to liquidation. Assume a December 31 year end and that the company does not prepare interim statements. Round all amounts to nearest dollar.

AV Airlines sold a ticket on May 1,2012 for travel on Jun 15,2012 for $1,500. The customer paid at time of booking the flight. Provide the necessary journal entries.

Explain what contingent assets and liabilities are and how these items are accounted for financial reporting purposes.

Which statement is correct?

Which statement about contingencies is correct?

Which is an example of a liability?

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