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Current Liab & Payroll Practice Solutions

Accounts payable are recorded at their face value. Time value of money reflects the difference between the value of money today vs in the future. A company's $500,000 mortgage will be reported as $26,500 in current liabilities and $473,500 in non-current liabilities on its statement of financial position. Current liabilities are examined to determine how much cash will be required to meet short-term obligations. Warranty provisions require estimates and record expected future warranty costs.

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41 views4 pages

Current Liab & Payroll Practice Solutions

Accounts payable are recorded at their face value. Time value of money reflects the difference between the value of money today vs in the future. A company's $500,000 mortgage will be reported as $26,500 in current liabilities and $473,500 in non-current liabilities on its statement of financial position. Current liabilities are examined to determine how much cash will be required to meet short-term obligations. Warranty provisions require estimates and record expected future warranty costs.

Uploaded by

Ngân Giang
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Long-Term Liabilities & Payroll: Practice Questions:

Question 1:

Accounts payable are recorded on the books at their

a) net present value.


b) net amount.
c) net realizable value.
d) face value.

Time value of money

a) is generally used for valuing all liabilities.


b) reflects the difference between the value of a dollar today versus a dollar paid in the future.
c) is not used for financial reporting purposes.
d) is immaterial.

On July 31, 2020, Able Co. has a $500,000 15-year mortgage outstanding. Over the next year the
company will make 12 monthly payments of $5,000 representing $33,500 of interest and $26,500 of
principal repayment. Which of the following best represents how the mortgage will be reported on the
July 31, 2020 statement of financial position?

Current Liabilities Non-Current Liabilities


a) $26,500 $473,500
b) $26,500 $440,000
c) $60,000 $440,000
d) $60,000 $473,500

Current liabilities = the principal payments that will be paid in the current year.
Interest represents the monthly expense and is not included in the $500,000 mortgage payable.

For which of the following reasons would a user examine the current liabilities?

a) to determine how quickly accounts receivable are collected


b) to determine how much cash will be required to meet obligations in the short term
c) to determine how much cash will be required to meet obligations in the long-term
d) to evaluate company performance

A short-term liability used by a company to finance the purchase of current assets; and that is often
secured by accounts receivable or inventory is referred to as

a) an accounts payable.
b) a current liability.
c) a line of credit.
d) overdraft protection.
A company has $5,000,000 in long-term debt outstanding. It expects to repay the loan evenly over the next
four years. Which of the following represents how it will be shown on the year-end statement of financial
position?

a) Accounts Payable: $1,250,000, Long-Term Debt: $3,750,000


b) Current Portion of Long-Term Debt: $1,250,000, Long-Term Debt: $3,750,000
c) Current Portion of Long-Term Debt: $2,500,000, Long-Term Debt: $2,500,000
d) Long-Term Debt: $5,000,000

Current liability shows as the amounts that will be paid in the next 12 months: (5,000,000 / 4)

During 2020 Lockport Appliances sold 400 appliances worth $2,000,000. Each appliance comes with a
one-year assurance-type warranty, which Lockport estimates will cost $75 each. During the year Lockport
spent $12,500 on warranty costs for the appliances sold in 2020. At the end of the 2020 the warranty
provision and the warranty expense related to these sales would be closest to

Warranty Provision Warranty Expense


a) $17,500 $12,500
b) $17,500 $30,000
c) $12,500 $12,500
d) $30,000 $30,000

To set up:
Warranty Expense 30,000
Warranty Provision 30,000

To record warranty costs:


Warranty Provision 12,500
Inventory 12,500

Provision = 400 appliances x $75 each = $30,000 less the amount used up $12,500 = $17,500
Expense = 400 appliances x $75 each = $30,000

Which of the following liabilities requires the use of an estimate when it is initially recorded?

a) Wages Payable
b) Unearned Revenue
c) Warranty Provision
d) Accounts Payable
Question 2:

ABC Company has an employee that is paid salary twice each month.

Bob’s take home pay is $1,875.00 (he is paid this amount twice each month)
Payroll #1 – June 15th – payable on June 22nd,
Payroll #2 – June 30th – payable on July 7th
Deductions from his pay are CPP of $82.50, EI of $34.50 and Tax of $241.00
Bob also makes a charitable donation of $50 each pay to United Way

Required:
Using the 4 Required Entries - Journalize applicable transactions related to the June payroll, including the
donation to United Way and payroll remittances to CRA due on the 15th of July.
Solution:

1 Employee Entry:
June 15 Wages Expense 2,283.00
CPP Payable 82.50
EI Payable 34.50
Payroll Taxes Payable 241.00
United Way Donations Payable 50.00
Wages Payable 1,875.00
Bob’s payroll #1

2 Employer Entry:
June 15 CPP Expense (x 1) 82.50
EI Expense (x 1.4) 48.30
CPP Payable 82.50
EI Payable 48.30

3 Payment of Wages:
June 22 Wages Payable 1,875.00
Cash 1,875.00

1 Employee Entry:
June 30 Wages Expense 2,283.00
CPP Payable 82.50
EI Payable 34.50
Payroll Taxes Payable 241.00
United Way Donations Payable 50.00
Wages Payable 1,875.00
Bob’s payroll #2

2 Employer Entry:
June 30 CPP Expense (x 1) 82.50
EI Expense (x 1.4) 48.30
CPP Payable 82.50
EI Payable 48.30

3 Payment of Wages:
July 7 Wages Payable 1,875.00
Cash 1,875.00

4 Remittance of Source Deductions:


July 15 CPP Payable (82.50 + 82.50) x 2 330.00
EI Payable (34.50 + 48.30) x 2 165.60
Payroll Taxes Payable (241 x 2) 482.00
Cash (cheque to CRA) 977.60

July 15 United Way Donations Payable (50 x 2) 100.00


Cash (cheque to United Way) 100.00

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