Test Bank For Accounting Principles 7Th Canadian Edition Volume 2 By Jerry J. Weygandt
The Test Bank for Accounting Principles 7th Canadian Edition Volume 2 by Jerry J. Weygandt is a valuable resource for students and instructors alike. It contains a wide range of questions and exercises designed to help students test their knowledge and understanding of key accounting concepts covered in Volume 2. These questions cover a range of topics including financial accounting, managerial accounting, and financial statement analysis.
The Test Bank is an excellent tool for instructors to create assessments and homework assignments. It provides a variety of questions at varying levels of difficulty, allowing instructors to customize assignments to meet the needs of their students. Additionally, the Test Bank comes with answer keys that allow instructors to quickly grade assignments and provide feedback to their students.
For students, the Test Bank is a useful study aid. The questions and exercises provide an opportunity to practice and reinforce their understanding of key accounting concepts covered in Volume 2. The Test Bank also comes with detailed solutions that provide step-by-step explanations of how to approach each question. This allows students to identify their areas of weakness and focus their studying efforts accordingly.
CHAPTER 10 Current Liabilities and payroll
CHAPTER LEARNING OBJECTIVES
1. Account for determinable or certain current liabilities. Liabilities are present obligations arising from past events, to make future payments of assets or services. Determinable liabilities have certainty about their existence, amount, and timing—in other words, they have a known amount, payee, and due date. Examples of determinable current liabilities include operating lines of credit, notes payable, accounts payable, sales taxes, unearned revenue, current maturities of long-term debt, and accrued liabilities such as property taxes, payroll, and interest.
2. Account for uncertain liabilities. Estimated liabilities exist, but their amount or timing is uncertain. As long as it is likely the company will have to settle the obligation, and the company can reasonably estimate the amount, the liability is recognized. Product warranties, customer loyalty programs, and gift cards result in liabilities that must be estimated. They are recorded either as an expense (or as a decrease in revenue) or a liability in the period when the sales occur. These liabilities are reduced when repairs under warranty or redemptions occur. Gift cards are a type of unearned revenue as they result in a liability until the gift card is redeemed. As some cards are never redeemed, it is necessary to estimate the liability and make adjustments.
A contingency is an existing condition or situation that is uncertain, where it cannot be known if a loss (and a related liability) will result until a future event happens, or does not happen. Under ASPE, a liability for a contingent loss is recorded if it is likely a loss will occur and the amount of the contingency can be reasonably estimated. Under IFRS, the threshold for recording the loss is lower. It is recorded if a loss is probable. Under ASPE, these liabilities are called contingent liabilities, and under IFRS, these liabilities are called provisions. If it is not possible to estimate the amount, these liabilities are only disclosed. They are not disclosed if they are unlikely.
3. Determine payroll costs and record payroll transactions. Payroll costs consist of employee and employer payroll costs. In recording employee costs, Salaries Expense is debited for the gross pay, individual liability accounts are credited for net pay. In recording employer payroll costs, Employee Benefits Expense is debited for the employer’s share of CPP, EI, workers’ compensation, vacation pay, and any other deductions or benefits provided. Each benefit is credited to its specific current liability account.
4. Prepare the current liabilities section of the balance sheet. The nature and amount of each current liability and contingency should be reported in the balance sheet or in the notes accompanying the financial statements. Traditionally, current liabilities are reported first and in order of liquidity. International companies sometimes report current liabilities on the lower section of the balance sheet and in reverse order of liquidity.
5. Calculate mandatory payroll deductions (Appendix 10A). Mandatory payroll deductions include CPP, EI, and income taxes. CPP is calculated by multiplying pensionable earnings (gross pay minus the pay period exemption) by the CPP contribution rate. EI is calculated by multiplying insurable earnings by the EI contribution rate. Federal and provincial income taxes are calculated using a progressive tax scheme and are based on taxable earnings and personal tax credits. The calculations are very complex and it is best to use one of the CRA income tax calculation tools such as payroll deduction tables.
Exercises
Exercise 1
Leung Properties Co. paid $5,600 for property taxes in the 2016 calendar year. In 2017, Leung receives its property tax bill on May 1 for $6,200 which is payable on June 30, 2017.
Instructions
Calculate the prepaid or property taxes payable that Leung will report on its balance sheet if Leung’s year end is
a) February 28, 2017
b) May 31, 2017
c) September 30, 2017
d) December 31, 2017
Solution 1 (10 min.)
a) Property taxes payable ($5,600 x 2 ÷ 12) $ 933
b) Property taxes payable ($6,200 x 5 ÷ 12) $ 2,583
c) Prepaid property taxes ($6,200 x 3 ÷ 12) $ 1,550
d) Both Prepaid property taxes and property taxes payable are $ 0
Bloomcode: Application
Difficulty: Medium
Learning Objective: Account for determinable or certain current liabilities.
Section Reference: Determinable (Certain) Current Liabilities
CPA: Financial Reporting
Exercise 2
Chu Company billed its customers a total of $2,655,500 including HST of $305,500 for the month of November.
Instructions
Prepare the general journal entry to record the revenue and related liabilities for the month.
Solution 2 (5 min.)
Journal Entry:
Accounts Receivable2,655,500
Sales Revenue2,350,000
HST Payable305,500
Bloomcode: Application
Difficulty: Easy
Learning Objective: Account for determinable or certain current liabilities.
Section Reference: Determinable (Certain) Current Liabilities
CPA: Financial Reporting
CPA: Taxation
Exercise 3
On April 1, Hoadley Company borrows $90,000 from Northwest Provincial Bank by signing a 6-month, 6%, interest-bearing note. Hoadley’s year end is August 31.
Instructions
Prepare the following entries associated with the note payable on the books of Hoadley Company:
a) The entry on April 1 when the note was issued.
b) Any adjusting entries necessary on May 31 in order to prepare the quarterly financial statements. Assume no other interest-accrual entries have been made.
c) The adjusting entry at August 31 to accrue interest.
d) The entry to record payment of the note at maturity.
Solution 3 (10 min.)
a) Apr 1 Cash 90,000
Notes Payable90,000
b) May 31 Interest Expense 900
Interest Payable900
($90,000 × 6% × 2 ÷ 12)
c) Aug 31 Interest Expense 1,350
Interest Payable1,350
($90,000 × 6% × 3 ÷ 12)
d) Oct 1 Notes Payable 90,000
Interest Payable ($900 $1,350)2,250
Interest Expense ($90,000 x 6% x 1 ÷ 12)450
Cash92,700
Bloomcode: Application
Difficulty: Medium
Learning Objective: Account for determinable or certain current liabilities.
Section Reference: Determinable (Certain) Current Liabilities
CPA: Financial Reporting
Exercise 4
On January 30, 2017, Titan Techniques gave Matzushibi Motors a 90-day, 8%, $80,000 note payable to extend a past due account payable. Titan has a March 31 year end.
Instructions
Prepare the year-end adjusting entry to accrue interest and record payment of the note on April 22, 2017.
Solution 4 (10 min.)
Mar 31 Interest expense 1,067 Interest payable 1,067 (80,000 x 8% x2/12 )
Apr 30 Interest expense 533
Interest payable1,067
Note payable80,000
Cash81,600
Interest expense = 80,000 x 8% x 1/12 = 533
Bloomcode: Application
Difficulty: Medium
Learning Objective: Account for determinable or certain current liabilities.
Section Reference: Determinable (Certain) Current Liabilities
CPA: Financial Reporting
Exercise 5
Walters Accounting Company receives its annual property tax bill for the calendar year on May 1, 2018. The bill is for $32,000 and payable on June 30, 2018. Walters paid the bill on June 30, 2018. The company prepares quarterly financial statements and had initially estimated that its 2018 property taxes would be $30,000.
Instructions
Prepare all the required journal entries for 2018 related to the property taxes, including quarterly accruals.
Solution 5 (15 min.)
Mar 31 Property Tax Expense ($30,000 × 3 ÷ 12) 7,500
Property Tax Payable7,500
Jun 30 Property Tax Expense ($32,000 × 6 ÷ 12 – $7,500) 8,500
Property Tax Payable7,500
Prepaid Property Tax ($32,000 x 6 ÷ 12)16,000
Cash32,000
Sep 30 Property Tax Expense ($32,000 × 3 ÷ 12) 8,000
Prepaid Property Tax8,000
Dec 31 Property Tax Expense ($32,000 × 3 ÷ 12) 8,000
Prepaid Property Tax8,000
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