Question

Joan’s Golf Shop Ltd. had the following transactions involving current liabilities in its first year of operations:

1.		The company ordered golf equipment from suppliers for $545,000, on credit. It paid $500,000 to suppliers during the year.
2.		The shop has seven employees, who earn gross wages of $231,000 for the year. From this, the company deducted 20% for income taxes, $11,400 in CPP premiums, and $3,770 in EI premiums before distributing the cheques to the staff. As an employer, Joan was also required to match the employees’ CPP premiums and pay $5,278 in EI premiums. Eleven-twelfths of the amounts due to the government (all except the last month) were paid before the end of the year.
3.		The company gives customers a one-year warranty against defects on golf clubs. Management estimated that warranty costs would total 2% of sales. Sales of golf clubs for the year were $1,100,000. During the year, the company spent $13,800 on refunds under the warranty.
4.		Some customers order very expensive, custom-made golf clubs. In these cases, the company requires them to pay a deposit of 50% of the selling price when the order is placed. During the year, deposits totalling $22,000 were received for custom orders. None of these orders have been delivered yet.

A) Prepare journal entries to record the transactions.

1a. To record purchase of inventory on account

1b. To record payment to supplier

2a. To record payment to staff

2b. To record employer's liabilities

2c. To record payment to government

3a. To record warranty expense

3b. To record warranty payments

4.

B) Prepare the current liabilities section of the statement of financial position as it would appear at the end of the year.

Answer 1

A.  

Transaction	Account Titles	Debit	Credit
		$	$
1.a.	Merchandise Inventory	545,000
	Accounts Payable		545,000
1.b.	Accounts Payable	500,000
	Cash		500,000
2.a.	Salaries and Wages Expense	231,000
	Employees Income Taxes Payable		46,200
	CPP payable		11,400
	EI payable		3,770
	Cash		169,630
2.b.	Payroll Expense	16,678
	CPP payable		11,400
	EI payable		5,278
2.c.	Employees Income Taxes Payable	42,350
	CPP Payable	20,900
	EI Payable	8,294
	Cash		71,544
3.a.	Warranty Expense	22,000
	Estimated Warranty Liability		22,000
3.b.	Estimated Warranty Liability	13,800
	Cash		13,800
4.	Cash	22,000
	Unearned Revenue		22,000

B.

Statement of Financial Position ( Partial ) End of Year 1
Current Liabilities
Accounts Payable	$45,000
Employees Income Taxes Payable	3,850
CPP Payable	1,900
EI Payable	754
Unearned Revenue	22,000
Estimated Warranty Liability	8,200
Total Current Liabilities		$ 81,704