Question 1

German Auto Parts is a defendant in a multimillion-dollar lawsuit that was filed in a prior year.The lawsuit was not previously disclosed in the financial statements or accompanying footnotes because the company has been vigorously defending its position,and its lawyers initially indicated that the claim was not valid.During the current year,however,the facts and circumstances have changed such that the likelihood of a loss approximating $5 million is now considered reasonably possible.How should the company recognize this lawsuit in its current-year financial statements?

Accepted Answer

The company should disclose the matter in the footnotes accompanying the financial statements since a loss is considered reasonably possible. This is in accordance with the accounting guidance on contingencies that states that a reasonably possible loss should be disclosed in the footnotes even if the liability is not probable. Options A and B are incorrect because the company needs to disclose the information to its stakeholders even if it was not previously recognized. Option D is incorrect because recording a contingent liability is only appropriate if the loss is considered probable, which is not the case here.

Question 2

Selected information from the firm's consolidated balance sheet is provided below. Assume that all of the account balances on the balance sheet are normal balances.
 
-Refer to the partial balance sheet presented above for Glass Doctor.Compute the following liquidity ratios for Year 1 and Year 2:
 Current ratio
Quick ratio
Cash ratio
Operating cash flow ratio 
Assume that Glass Doctor's statement of cash flows presented cash flows from operating activities of $204.6 million and $201.1 million for the years ended December 31,Year 2 and Year 3,respectively.Comment on the direction and significance of the change in the ratios from Year 1 to Year 2.

Accepted Answer

The answer of Selected information from the firm's consolidated balance...

Question 3

During the first quarter of Year 1, the company sold 4,000 batteries on credit for $150 each plus HST of 6%.
-Refer to the figure General Lighting.The $150 price of each battery includes a $3 federal excise tax.How would this be recorded?

Accepted Answer

The answer of During the first quarter of Year 1,...

Question 4

Georgia's Salon
The salon sells $50,000 of gift cards in May Year 1. These gift cards may be used anytime before their expiration on May 31, Year 2.
-Refer to the figure Georgia's Salon.As of May 31,Year 2,all but $1,500 of the gift cards had been redeemed for salon services.What is the impact on the accounting equation of recording the expired gift cards?

Accepted Answer

When the gift cards expire, the liability (the obligation to provide services) decreases because the salon no longer owes services to the holders of the expired gift cards. This decrease in liability is accompanied by an increase in shareholders' equity, as the obligation is removed without the need for an outlay of resources, effectively increasing the net assets of the company.

Question 5

Gibraltar, Inc.A partial balance sheet for the company is provided below. Assume that all of the account balances on the balance sheet are normal balances.
 
-Refer to the partial balance sheet presented above for Gibraltar,Inc.Compute the total current liabilities for December 31,Year 2,and December 31,Year 1.

Accepted Answer

The answer of Gibraltar, Inc.A partial balance sheet for the...

Question 6

Every month,Glacier Distributors orders shipping supplies from a particular vendor.On February 13,Year 1,the company orders supplies amounting to $21,000 on account,payable on March 15,Year 1.Due to an unexpected decline in business,the company is unable to pay its vendor on March 15th,and so asked for a payment extension.The vendor granted the extension but requires the company to sign a note that specifies 7.5% interest beginning March 15,Year 1,with a due date of July 15,Year 1.The company pays the amount in full on July 15,Year 1.
Prepare the necessary journal entries for Glacier Distributors on February 13th,March 15th,and July 15th.

Accepted Answer

The answer of Every month,Glacier Distributors orders shipping supplies from...

Question 7

During the first quarter of Year 1, the company sold 4,000 batteries on credit for $150 each plus HST of 6%.
-Refer to the figure General Lighting.What is the amount of the accounts receivable as a result of HST payment to the Canada Revenue Agency?

Accepted Answer

The amount of accounts receivable includes both the sales amount and the HST. The sales amount is 4,000 batteries * $150 = $600,000. The HST is 6% of $600,000, which is $36,000. Therefore, the total accounts receivable is $600,000 + $36,000 = $636,000.

Question 8

During January,Gaston Wholesalers experienced some difficulties with cash flow,so it approached one of its vendors about a payment extension.The vendor agreed to the extension on the condition that the company sign a 30-day note that includes 9% interest.What journal entry is needed to record the retirement of the note on the maturity date?

Accepted Answer

When the note is retired on the maturity date, the company would debit notes payable for the full amount of the note, debit interest expense for the interest accrued during the 30-day period, and credit cash for the total amount paid (principal amount plus interest). Therefore, the correct journal entry is to debit notes payable, debit interest expense, and credit cash. The other options are incorrect because they do not account for interest expense or the correct account to be debited for the note payable.

Question 9

During the first quarter of Year 1, the company sold 4,000 batteries on credit for $150 each plus HST of 6%.
-Refer to the figure General Lighting.When the company records a transaction to accommodate federal excise tax,what is the impact on the accounting equation?

Accepted Answer

The transaction of selling batteries on credit increases assets (accounts receivable or cash) by the total sale amount including HST, increases liabilities (due to the HST collected which is owed to the government), and increases shareholders' equity (through sales revenue).

Question 10

On April 1,Year 1,Guyton Sails accepted a $12,000 advance payment for maintaining a customer's fleet of sailboats.The contract is for 12 months.In May Year 1,the company performed $1,200 worth of repairs.What is the remaining liability that will appear on the company's balance sheet at the end of May?

Accepted Answer

$12,000 / 12 months = $1,000 earned each month.
$12,000 - $2,000 (2 months' worth)= $10,000

Question 11

A company pays wages of $12,500 at the end of each five-day work week.
 A) What is the standard entry for wages paid on each pay date?
B) Assuming the company's year-end falls on a Wednesday, prepare the necessary journal entries on December 31 st and on the January 2 nd pay date.

Accepted Answer

The answer of A company pays wages of $12,500 at...

Question 12

Georgia's Salon
The salon sells $50,000 of gift cards in May Year 1. These gift cards may be used anytime before their expiration on May 31, Year 2.
-Refer to the figure Georgia's Salon.During May Year 2,$10,000 of the gift cards were redeemed for salon services.Which of the following is the correct journal entry to record the redemption of the gift cards? a.
$\begin{array}{lcc}
\text { Unearned Sales Revenue } & 10,000 & \
\text { Accounts Payable } & & 10,000 \
\end{array}$

b.
$\begin{array}{lcc}
\text { Unearned Sales Revenue } & 10,000 & \
\text { Cash } && 10,000
\end{array}$

c.
$\begin{array}{lcc}
\text { Prepaid Sales Revenue } & 10,000 & \
\quad \text { Sales Revenue }&&10,000 \
\end{array}$

d.
$\begin{array}{lcc}
\text { Unearned Sales Revenue } & 10,000 \
\text { Sales Revenue } & & 10,000
\end{array}$

Accepted Answer

The answer of Georgia's Salon
The salon sells $50,000 of gift...

Question 13

Groovy Swing is a retail store specializing in golf equipment and apparel.On February 1,Year 1,the company borrows $250,000 cash from the bank with a six-month,6% note payable.The note is used to finance the acquisition of inventory for the spring selling season.
Prepare the company's necessary journal entries on February 1st and the note's maturity date.

Accepted Answer

The answer of Groovy Swing is a retail store specializing...

Question 14

Georgia's Salon
The salon sells $50,000 of gift cards in May Year 1. These gift cards may be used anytime before their expiration on May 31, Year 2.
-Refer to the figure Georgia's Salon.Which of the following is the correct journal entry to record the sale of the gift cards? a.
$\begin{array}{ll}
\text { Cash } & 50,000 \
\text { Accounts Payable } && 50,000 \
\end{array}$

b.
$\begin{array}{ll}
\text { Cash } & 50,000 \
\quad \text { Unearned Sales Revenue } &&50,000 \
\end{array}$

c.
$\begin{array}{ll}
\text { Cash } & 50,000 \
\text { Sales Revenue } &&50,000
\end{array}$

d.
$\begin{array}{lll}
\text { Cash } & 50,000 \
\text { Prepaid Sales Revenue } & & 50,000
\end{array}$

Accepted Answer

The answer of Georgia's Salon
The salon sells $50,000 of gift...

Question 15

Gospel Ministries purchased two pianos on account on April 3,Year 1 for $6,600.The company agreed to pay an extra $100 to have the seller deliver the pianos.Unfortunately,one of the pianos was damaged during transit.The seller agreed to deduct $200 from the amount owed.Gospel Ministries paid for the pianos in full on May 3,Year 1.
Prepare the journal entries that Gospel Ministries should make on April 3 and May 3.

Accepted Answer

The answer of Gospel Ministries purchased two pianos on account...

Question 16

Selected information from the firm's consolidated balance sheet is provided below. Assume that all of the account balances on the balance sheet are normal balances.
 
-Refer to the partial balance sheet presented above for Glass Doctor.Compute the total current liabilities for December 31,Year 2,and December 31,Year 1.

Accepted Answer

The answer of Selected information from the firm's consolidated balance...

Question 17

Gibraltar, Inc.A partial balance sheet for the company is provided below. Assume that all of the account balances on the balance sheet are normal balances.
 
-Refer to the partial balance sheet presented above for Gibraltar,Inc.Compute the following liquidity ratios for Year 2 and Year 1:
 Current ratio 
Quick ratio 
Cash ratio 
Comment on the direction and significance of the change in the ratios from Year 1 to Year 2.

Accepted Answer

The answer of Gibraltar, Inc.A partial balance sheet for the...

Question 18

Which of the following would appear only in the footnotes accompanying the financial statements?

Accepted Answer

Items that cannot be quantified or are not yet determinable but are likely to have an impact on the financial position or performance of a company are typically disclosed in the footnotes. This is because while they are relevant to the financial understanding of the company, they cannot be accurately reflected in the financial statements due to their indeterminate nature at the time of reporting.

Question 19

Georgia's Salon
The salon sells $50,000 of gift cards in May Year 1. These gift cards may be used anytime before their expiration on May 31, Year 2.
-Refer to the figure Georgia's Salon.As of May 31,Year 2,all but $1,500 of the gift cards had been redeemed for salon services.Which of the following is the correct journal entry to record for the expired gift cards? a.
$\begin{array}{lc}
\text { Unearned Sales Revenue } & 1,500 \
\quad \text { Accounts Payable }&&1,500 \
\end{array}$

b.
$\begin{array}{lc}
\text { Unearned Sales Revenue } & 1,500 \
\quad \text { Sales Revenue }&&1,500 \
\end{array}$

c.
$\begin{array}{lc}
\text { Loss on Gift Cards } &1,500\
\text { Sales Revenue }&& 1,500 \
\end{array}$

d.
$\begin{array}{lc}
\text { Accounts Receivable }&1,500 \
\text { Sales Revenue } && 1,500 \
\end{array}$

Accepted Answer

The answer of Georgia's Salon
The salon sells $50,000 of gift...

Question 20

On August 1,Year 1,Genuine Services accepted a $6,000 advance payment from a customer for services to be provided in the future.The contract requires the company to review operations at each of the customer's six locations over the next 6 months.What is the impact on the accounting equation of recording this transaction on August 1?

Accepted Answer

Accepting the advance payment increases the company's assets (cash) and creates a liability (unearned revenue) because the services have not yet been provided.

Quiz 8: Current Liabilities

During the first quarter of Year 1, the company sold 4,000 batteries on credit for $150 each plus HST of 6%. -Refer to the figure General Lighting.The $150 price of each battery includes a $3 federal excise tax.How would this be recorded?

During the first quarter of Year 1, the company sold 4,000 batteries on credit for $150 each plus HST of 6%. -Refer to the figure General Lighting.What is the amount of the accounts receivable as a result of HST payment to the Canada Revenue Agency?

During the first quarter of Year 1, the company sold 4,000 batteries on credit for $150 each plus HST of 6%. -Refer to the figure General Lighting.When the company records a transaction to accommodate federal excise tax,what is the impact on the accounting equation?

A company pays wages of $12,500 at the end of each five-day work week. A) What is the standard entry for wages paid on each pay date? B) Assuming the company's year-end falls on a Wednesday, prepare the necessary journal entries on December 31 st and on the January 2 nd pay date.

Which of the following would appear only in the footnotes accompanying the financial statements?