Question

Gibco Limited has an October 31 year end. On October 1, 2020 Gibco had the following current liabilities

listed on its books:

Bank credit line ................................................ $23,250

Accounts payable ............................................. 100,500

CPP, EI and income tax payable ...................... 9,620

Unearned revenues ........................................... 12,000

During October 2020 Gibco engaged in the following transactions:

Oct 1 Paid $20,000 on the line of credit with their bank to replace the bank overdraft.

Oct 5 Sold goods worth $30,000 on which they had previously received a $12,000 deposit. The balance is due

in 30 days.

Oct 12 Bought $20,000 of inventory on credit, terms of 30 days.

Oct 15 Paid amounts due the Government of Canada for the payroll amounts outstanding from September 30.

Oct 20 Paid $87,000 owing to a supplier.

Oct 21 Received $5,000 from a client for work that will be performed in January 2021.

Oct 21 Sold $56,000 of goods half for cash, half on credit.

Oct 30 Paid the monthly payroll amounts to employees. The gross payroll was $16,200. Amounts withheld

from the employees' cheques were as follows:

 Canada pension plan premiums (CPP) $802

 Employment insurance premiums (EI) $259

 Income tax $2,800

At this time, the company also recorded their liability for amounts due to the government for CPP and

EI.

Oct 31 Declared $5,000 of dividends payable next year.

Instructions

a) Prepare all of the journal entries required as a result of the above transactions.

b) Prepare the current liabilities section of the statement of balance sheet at October 31, 2020.

Answer 1

Journal Entries

DATE PARTICULARS AMONT( DR) AMOUNT(CR)

1st Oct Bank credit Line A/c    Dr 20000    -

   To Bank A/c    -    20000

(Being paid in line of credit with bank to replace

bank overdraft)

5th Oct Accounts Receivable A/c    Dr 18000 -

   To Sales A/c    -    18000

   ( Being amount due for goods sold)

12th oct    Purchases A/c    Dr 20000 -

To Accounts Payable A/c -    20000

   ( Being inventory bought on credit)

15 Oct CPP,EI and Income Tax A/c    Dr 9620 -

To Bank A/c -    9620

(Being outstanding amount paid to government of Canada)

20 Oct    Accounts Payable A/c    Dr 87000    -

   To Bank A/c -    87000

( Being amount paid to supplier)

21st Oct Bank A/c Dr 5000    -

To Unearned Revenue -    5000

   ( Being amount received for work to be performed in

   January 2021)

21st Oct    Cash A/c    Dr 28000    -

   Accounts Receivable A/c    Dr 28000    -

   To Sales A/c -    56000

( Being Goods sold partly for cash and partly for credit)

30th Oct CCP, EI and Income Tax A/c    Dr 16200 -

To Bank    -    12339

To CCP, EI and income tax payable A/c    - 3861

( Being monthly payroll paid in part )

31st Oct    Dividend A/c    Dr 5000    -

   To Dividend Payable A/c -    5000

( Being Dividend declared)

Balance Sheet

Current Liabilities

Bank Credit line 3250

Accounts Payable    33500

CPP,EI and Income Tax

Payable    3861

Unearned Revenue 17000

Dividend Payable    5000