Question

Hrudka Corp. has manufactured a broad range of quality products since 1988. The following information is available for the company’s fiscal year ended February 28, 2011. 1. The company has $4 million of bonds payable outstanding at February 28, 2011, that were issued at par in 2000. The bonds carry an interest rate of 7%, payable semi-annually each June 1 and December 1. 2. Hrudka has several notes payable outstanding with its primary banking institution at February 28, 2011. In each case, the annual interest is due on the anniversary date of the note each year (same as the due dates listed). The notes are as follows: 3. Hrudka has a two-year warranty on selected products, with an estimated cost of 1% of sales being returned in the 12 months following the sale, and a cost of 1.5% of sales being returned in months 13 to 24 following sale. The warranty liability outstanding at February 28, 2010, was $5,700. Sales of warrantied products in the year ended February 28, 2011, were $154,000. Actual warranty costs incurred during the current fiscal year are as follows: Warranty claims honoured on 2009–2010 sales …. $4,900 Warranty claims honoured on 2011–2011 sales …. 1,100 $6,000 4. Regular trade payables for supplies and purchases of goods and services on open account are $414,000 at February 28, 2011. Included in this amount is a loan of $23,000 owing to an affiliated company. 5. The following information relates to Hrudka’s payroll for the month of February 2011. The company’s required contribution for EI is 1.4 times that of the employee contribution; for CPP it is 1.0 times that of the employee contribution. Salaries and wages outstanding at February 28, 2011 ….. $220,000 EI withheld from employees ………….. 9,500 CPP withheld from employees …………. 16,900 Income taxes withheld from employees ……….. 48,700 Union dues withheld from employees ………. 21,500 6. Hrudka regularly pays GST owing to the government on the 15th of the month. Hrudka’s GST transactions include the GST that it charges to customers and the GST that it is charged by suppliers. During February 2011, purchases attracted $28,000 of GST, while the GST charged on invoices to customers totalled $39,900. At January 31, 2011, the balances in the GST Recoverable and GST Payable accounts were $34,000 and $60,000, respectively. 7. Other miscellaneous liabilities included $50,000 of dividends payable on March 15, 2011; $25,000 of bonuses payable to company executives (75% payable in September 2011, and 25% payable the following March); and $75,000 in accrued audit fees covering the year ended February 28, 2011. 8. Hrudka sells gift cards to its customers. The company does not set a redemption date and customers can use their cards at any time. At March 1, 2010, Hrudka had a balance outstanding of $950,000 in its Unearned Revenues-Gift Cards account. The company received $225,000 in cash for gift cards purchased during the current year and $375,000 in redemptions took place during the year. Based on past experience, 15% of customer gift card balances never get redeemed. At the end of each year, Hrudka recognizes 15% of the opening balance of Unearned Revenues as earned during the year. Instruction.

For each item included as a current liability, identify whether the item is a financial liability. Explain.

Answer 1