Waterway Services Ltd. follows ASPE and had earned accounting income before taxes of $518,000 for the year ended December 31, 2020.

During 2020, Waterway paid $80,000 for meals and entertainment expenses.

In 2017, Waterway’s tax accountant made a mistake when preparing the company’s income tax return. In 2020, Waterway paid $9,700 in penalties related to this error. These penalties were not deductible for tax purposes.

Waterway owned a warehouse building for which it had no current use, so the company chose to use the building as a rental property. At the beginning of 2020, Waterway rented the building to Trung Inc. for two years at $56,000 per year. Trung paid the entire two years’ rent in advance.

Waterway used the straight-line depreciation method for accounting purposes and recorded depreciation expense of $311,600. For tax purposes, Waterway claimed the maximum capital cost allowance of $465,300. This asset had been purchased at the beginning of the year for $3,069,000.

In 2020, Waterway began selling its products with a two-year warranty against manufacturing defects. In 2020, Waterway accrued $294,000 of warranty expenses: actual expenditures for 2020 were $90,600 with the remaining $203,400 anticipated in 2021.

In 2020, Waterway was subject to a 25% income tax rate. During the year, the federal government announced that tax rates would be decreased to 23% for all future years beginning January 1, 2021.

Prepare the journal entries to record current and future income taxes for 2020

Record below listed transactions under the appropriate General Ledger accounts. Be sure to list the Posting Reference number in the space provided under the General Ledger account for each transaction. Remember, each transaction should affect at LEAST two seperate General Ledger accounts.

Posting Reference Date Transaction PR 1 1/1/2020 Record owner's investment of $10,000 cash.

PR 2 1/1/2020 Purchased equipment at a total cost of $6,000. $1,000 of purchase paid with cash and the remainder paid with note payble in the amount of $5,000.

PR 3 1/3/2020 Prepaid three months of insurance expense in the amount of $900 with cash.

PR 4 1/15/2020 Deposited $2,000 for services provided.

PR 5 1/22/2020 Purchased $500 in office supplies with cash.

PR 6 1/31/2020 Deposited $2,500 for services provided.

AJE 1 1/31/2020 Record depreciation for equipment purchased at beginning of January. Equipment total cost was $6,000 with estimate life of 5 years. Record one month of depreciation.

AJE 2 1/31/2020 Record one month of insurance expense for the month of January 2020.

PR 7 2/4/2020 Paid January rent expense of $1,000 with cash.

PR 8 2/7/2020 Received January electricity bill in the amount of $232 to be paid later.

PR 9 2/7/2020 Received January telephone bill in the amount of $85 to be paid later.

PR 10 2/14/2020 Provided $500 in services; payment to be received later.

PR 11 2/25/2020 Paid January electricity bill with cash.

PR 12 2/25/2020 Paid January telephone bill with cash.

PR 13 2/25/2020 Paid $100 on Equipment Note Payable with cash; $84 toward princple and $16 toward interest expense.

PR 14 2/28/2020 Deposited $1,000 from services provided.

AJE 3 2/28/2020 Record depreciation for equipment purchased at beginning of January. Equipment total cost was $6,000 with estimate life of 5 years. Record one month of depreciation.

AJE 4 2/28/2020 Record one month of insurance expense for the month of February 2020.

PR 15 3/4/2020 Paid February rent expense of $1,000 with cash.

PR 16 3/4/2020 Prepaid March 2020 rent expense of $1,000 with cash.

PR 17 3/6/2020 Received February electricity bill in the amount of $200 to be paid later.

PR 18 3/6/2020 Received February telephone bill in the amount of $85 to be paid later.

PR 19 3/9/2020 Received payment for $500 of previously provided services.

PR 20 3/12/2020 Deposited $1,250 for services provided.

PR 21 3/16/2020 Paid $450 in professional fees for legal services with cash.

PR 22 3/25/2020 Paid February electricity bill with cash.

PR 23 3/25/2020 Paid February telephone bill with cash.

PR 24 3/25/2020 Paid $100 on Equipment Note Payable with cash; $84 toward princple and $16 toward interest expense.

PR 25 3/27/2020 Paid $75 for advertising expenses.

PR 26 3/27/2020 Provided $1,200 in services; payment to be received later.

PR 27 3/31/2020 Deposited $2,300 from services provided.

PR 28 3/31/2020 Received bill of $367 for maintenance services provided on equipment to be paid later.

PR 29 3/31/2020 Prepaid $3,000 for three months of rent expense.

PR 30 3/31/2020 Prepaid three months of insurance expense in the amount of $900 with cash.

AJE 5 3/31/2020 Record depreciation for equipment purchased at beginning of January. Equipment total cost was $6,000 with estimate life of 5 years. Record one month of depreciation.

AJE 6 3/31/2020 Record one month of insurance expense for the month of March 2020.

AJE 7 3/31/2020 Record March 2020 rent expense.

AJE 8 3/31/2020 Record March 2020 interest expense on Equipment Note Payable of $16.

AJE 9 3/31/2020 Record March 2020 electricity bill in the amount of $245 to be paid later.

AJE 10 3/31/2020 Record March 2020 telephone bill in the amount of $85 to be paid later.

Shucker’s Sea Food has three restaurants as shown below.

Management is concerned about the continued losses shown by Store A. They seek a recommendation from you, as a recent MBA graduate, as to whether or not the store should be discontinued. The special equipment used in each store has no resale value. If store A is closed, all employees will be discharged.

For discussion:

1. What is the financial advantage (disadvantage) of discontinuing Store A? The company has no alternative use for the restaurant facility.

2. How might the statements be restructured to provide a more informative management report for analysis purposes.

Record the following transactions on the books of Hope Hospital, which follows FASB (not-for-profit) and AICPA standards. The year is 2020. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

1. Hope received $69,000 in cash from pledges made in the previous year that were unrestricted as to purpose but intended to be received and expended in 2020.
2. Hope received $113,000 in pledges that indicated the money would be received in 2021. The donors imposed no restrictions other than it could be used for any purpose desired by the board.
3. Hope expended $64,000 for nursing training, using $58,000 of donor restricted resources received in 2019 for that purpose.
4. On June 15, 2020, Hope was awarded a $75,000 grant for cancer research by the U.S. Department of Agriculture. During 2020, Hope had qualified expenses under the grant totaling $55,000. This is cost reimbursement, grant.
5. Hope received $306,000 in cash. The board decided to invest the funds for future plant expansion.

Complete the Journal entrys.

1aHope received $69,000 in cash from pledges made in the previous year that were unrestricted as to purpose but intended to be received and expended in 2020. Record the cash from the pledges made in the previous year.

1bHope received $69,000 in cash from pledges made in the previous year that were unrestricted as to purpose but intended to be received and expended in 2020. Record the reclassification of the pledges received in the previous year.

02Hope received $113,000 in pledges that indicated the money would be received in 2021. The donors imposed no restrictions other than it could be used for any purpose desired by the board.

3aRecord the expense on nursing training.

3bRecord the transfer from donor restricted resources that had been given in 2019 for the purpose of nurse training.

4aOn June 15, 2020, Hope was awarded a $75,000 grant for cancer research by the U.S. Department of Agriculture.

4bDuring 2020, Hope had qualified expenses under the grant totaling $55,000.

4cRecord the expenses reimbursed under the grant totaling $55,000.

5aRecord the receipt in cash.

5bRecord the investment of the funds for future plant expansion.

5cRecord the demarcation of net assets-unrestricted for plant expansion.

10. You recently joined an AI (artificial intelligence) spin-out that has been launched by PhD students of the University of Oxford. The company has developed a range of proprietary algorithms that allow it to locate the source of malaria outbreaks, and predict the pace of the spread and the duration of the outbreak. The project has received public funding in the form of a research grant, but the funds may run out before the product is market ready. A new research grant application would delay the launch for 12 months but it is highly likely that the grant application will be successful. After the company has received some press coverage an off-shore based venture capital firm offers a much needed immediate cash injection in exchange for shares of the company.

a) You are tasked to make the final decision on whether to accept or reject the offer from the venture capital firm. Discuss how you reached your decision.

b) Discuss the short-term and long-term implications of your decision on the common good in the UK and globally.

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.

Flemington Bikes sells racing bikes on credit. It uses the ageing of accounts receivable method for estimating bad debts. On 30 June 2020, the Allowance for Doubtful Debts account had a balance of $8,800 CR before any adjustments. An ageing analysis of the account receivable balance as at 30 June 2020 is provided below. The uncollectable percentages for each age group are based on past experience and are shown next to the respective aged balances. Flemington Bikes is registered for goods and services tax (GST).

REQUIRED:

1. Using the ageing of accounts receivable method, calculate the estimated bad debts expense from the above information. Show all workings. (Hint: The company is registered for GST).

2. Prepare the general journal entry to record bad debts expense.

(Narrations are not required).   

3. Assume that Flemington Bikes uses the direct write-off method to account for bad debts. Prepare the general journal entry to write-off an account receivable from Bill Murray for $2,750 (GST inclusive) on 31 August 2020.

4. Explain how the direct write-off method differs from the allowance method when recording bad debts expense and why the direct write-off method violates the matching principle. (word limit 150).

QUESTION TWO

Flemington Bikes sells racing bikes on credit. It uses the ageing of accounts receivable method for estimating bad debts. On 30 June 2020, the Allowance for Doubtful Debts account had a balance of $8,800 CR before any adjustments. An ageing analysis of the account receivable balance as at 30 June 2020 is provided below. The uncollectable percentages for each age group are based on past experience and are shown next to the respective aged balances. Flemington Bikes is registered for goods and services tax (GST).

REQUIRED:

1. Using the ageing of accounts receivable method, calculate the estimated bad debts expense from the above information. Show all workings. (Hint: The company is registered for GST).

2. Prepare the general journal entry to record bad debts expense.

(Narrations are not required).   

3. Assume that Flemington Bikes uses the direct write-off method to account for bad debts. Prepare the general journal entry to write-off an account receivable from Bill Murray for $2,750 (GST inclusive) on 31 August 2020.

4. Explain how the direct write-off method differs from the allowance method when recording bad debts expense and why the direct write-off method violates the matching principle. (word limit 150).

Required information

[The following information applies to the questions displayed below.]

Cascade Company was started on January 1, Year 1, when it acquired $168,000 cash from the owners. During Year 1, the company earned cash revenues of $96,300 and incurred cash expenses of $61,800. The company also paid cash distributions of $12,000.

Required
Prepare a Year 1 income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows under each of the following assumptions. (Consider each assumption separately.)

b. Cascade is a partnership with two partners, Carl Cascade and Beth Cascade. Carl Cascade invested $92,400 and Beth Cascade invested $75,600 of the $168,000 cash that was used to start the business. Beth was expected to assume the vast majority of the responsibility for operating the business. The partnership agreement called for Beth to receive 55 percent of the profits and Carl to get the remaining 45 percent. With regard to the $12,000 distribution, Beth withdrew $3,600 from the business and Carl withdrew $8,400. (Amounts to be deducted should be indicated with minus sign.)