Question

lota Inc, an electronics retailer, just finished its first year of operations and is in the process of preparing its December 31, 2018 balance sheet. indicate that the account names and dollar amount If any) that lota would report within the current and long-term liabilities sections of its balance sheet at December 31, 2018 as a result of each transaction described below. If no liability should be recorded leave the item blank.

Question 1.

1a) On October 1, 2018 lota issued $ 8,000,000 of notes payable. The notes pay 6% interest each September 30^th and mature is installments. The first $1,000,000 installment is due September 30, 2019. List the current liability associated with this transaction.

Question 2.

1b). On October 1, 2018 lota issued $ 8,000,000 of notes payable. The notes pay 6% interest each September 30^th and mature in installments. The first $1,000,000 installment is due September 30, 2019. List long-term liabilities associated with this transaction.

Question 3.

2a) On December 31, 2018, lota issued a $ 1,400,000 short term note payable with a 5% rate of interest that due on May 31, 2019. Lota intends to refinance the note using a $900,000 long term loan from an existing line of credit that it will repay in three years. List the current liability associated with this transaction.

Question 4.

2b) On December 31, 2018, lota issued a $ 1,400,000 short term note payable with a 5% rate of interest that due on May 31, 2019. Lota intends to refinance the note using a $900,000 long term loan from an existing line of credit that it will repay in three years. List long-term liabilities associated with this transaction.

Question 5.

3. Lota sold $ 10,000 of gift cards during the first quarter of 2018 and an additional $5,000 of gift cards during the fourth quarter of 2018. By December 31, 2018, $7,000 of the gift cards sold during the first quarter had been redeemed and $3,000 of gift cards sold during the fourth quarter had been redeemed. Lota considers its gift cards to be broken after 6 months.

List the current liability associated with this transaction.

Question 6.

4. During 2018, lota sold 600 laptops for $500 each. All laptops come with a 1-year original warranty. Lota estimated warranty costs will be 3% of sales. By December 31, 2018 lota had spent $2,00 to fix or replace computer cover warranty. Lota collects a 5% sales tax on all laptops sold. Which will be remitted to the government in 2019?

Answer 1

Question1. 1a

Answer: 1) Current portion of notes payable $ 1,000,000

2) Accrued interest payable (8,000,000 x 6% x 3/12) $ 120.000

Question 2. 1b

Answer: 1) Long-term Notes Payable $ 7,000,000

Question 3. 2a

Answer: Notes Payable $ 500,000

Computation: (1,400,000 - 900,000)

Question 4. 2b

Answer: Notes Payable (Long-term) $ 600,000

Computation: (900,000 x 2/3)

Question 5. 3

Answer: Gift card liability $ 2,000

Computation: (5,000 - 3,000)

Since the gift cards will be broken after 6 months the unredeemed gift cards sold during the first quarter will not be recognized as a current liability nor other liability. The remaining unredeemed gift cards sold during the fourth quarter will be recognized as current liability.

Question 6.4

Answer: Warranty liability $7,000

Computation [2,000-((600 x 500) x3%)]

Tax payable $15,000

Computation (600 x 500 x 5%)

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