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 accounts payable, unearned revenues, operating lines of credit, notes payable, sales taxes, 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 as an expense (or as a decrease in revenue) and a liability in the period when the sales occur. These liabilities are reduced when repairs under warranty, redemptions, and returns occur. Gift cards are a type of unearned revenue because they result in a liability until the gift card is redeemed. Because 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 that 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 unless they could have a substantial impact on the entity.

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 payroll deductions, and Salaries Payable is credited for net pay. In recording employer payroll costs, Employee Benefits Expense is debited for the employer’s share of Canada Pension Plan (CPP), Employment Insurance (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.

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 Canada Revenue Agency income tax calculation tools such as payroll deduction tables.

Exercises

Exercise 1

City Wok Inc. paid $ 5,600 for property taxes in the 2020 calendar year. In 2021, City Wok Inc. receives its property tax bill on May 1 for $ 6,200 which is payable on June 30, 2021.

Instructions

Calculate the prepaid or property taxes payable that City Wok Inc. will report on its balance sheet if City Wok Inc.’s year end is

a) February 28, 2021

b) May 31, 2021

c) September 30, 2021

d) December 31, 2021

Exercise 2

Kenny 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.

Exercise 3

On April 1, Cartman Company borrows $ 90,000 from South Park Provincial Bank by signing a 6-month, 6%, interest-bearing note. Cartman’s year end is August 31.

Instructions

Prepare the following entries associated with the note payable on the books of Cartman 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.

Exercise 4

On January 30, 2021, 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 30, 2021.

Exercise 5

Merrygold Industrial purchased equipment costing $ 610,000 on September 30, 2021, by paying 10% down and signing a 6%, 6-month note payable for the balance.

Instructions

a) Prepare journal entries to record the purchase of the equipment, the accrual of interest on December 31, and the payment of the note at maturity. Merrygold computes interest based on the number of months outstanding.

b) Determine the balance of any liabilities associated with this transaction as at December 31, 2021.

Exercise 6

Walters Accounting Company receives its annual property tax bill for the calendar year on May 1, 2018. The bill is for $ 32,000 and is 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.

Exercise 7

Marsh Company had the following transactions during March:

Mar 1 Purchased computer equipment by issuing a $ 16,000, 6-month, 6% note payable. Interest is due at maturity.

Mar 5 Provided services to customers for $ 9,800 plus 13% HST; customers paid cash.

Mar 15 Purchased supplies on account from Grand and Toy for $ 7,500. Supplier terms are 2/10, n/30.

Mar 31 Paid the Grand and Toy account in full.

Instructions

a) Record the transactions.

b) Record any adjusting entries required at March 31 related to these liabilities.

Exercise 8

Harry Therapeutic Company is located in Leduc, Alberta and is a retailer of hair removal supplies. Beginning inventory is $ 45,000, and Harry uses the perpetual inventory system.

Alberta has GST of 5%. The following transactions took place during the month of September:

Sep 4 Harry purchased $ 35,000 of merchandise from Laser Cosmetics Corp. on account.

Sep 10 Harry sells $ 66,000 of hair removal products to a customer on credit terms n/30. The merchandise cost $ 42,000.

Sep 17 Harry pays for the merchandise purchased on September 4.

Sep 20 Harry receives the amount due from the September 10 sale.

Sep 30 Harry remits the appropriate amount of GST to the government for the month of September.

Instructions

Journalize the transactions above, including 5% GST on normal purchases and sales.

Exercise 9

Stella Inc., which prepares annual financial statements, is preparing adjusting entries on December 31. Analysis indicates the following:

1. The company is the defendant in an employee discrimination lawsuit involving $ 50,000 of damages. Legal counsel believes it is unlikely that the company will have to pay any damages.

2. December 31 is a Friday. The employees of the company have been paid on Monday, December 27 for the previous week which ended on Friday, December 24. The company employs 30 people who earn $ 80 per day and 15 people who earn $ 120 per day. All employees work 5-day weeks.

3. Employees are entitled to one day's vacation for each month worked. All employees described above in 2. worked the month of December.

4. The company is a defendant in a $ 750,000 product liability lawsuit. Legal counsel believes the company probably will have to pay the amount in full.

5. On November 1, Fiddler signed a $ 10,000, 6-month, 8% note payable. No interest has been accrued to date.

Instructions

Prepare any adjusting entries necessary at the end of the year.

Exercise 10

During April 2021, Crowe Company incurred the following transactions. This is Crowe’s first period of operations, and they plan to use the periodic method of accounting for inventory. Crowe reports under ASPE.

Apr. 1 Purchased a new automobile for $ 36,500; the automobile was paid for with a 2-year 5% note payable. Interest is due monthly on the 1st day of each month and the principal due as follows: 50% due in 1 year, the remainder due in 2 years.

Apr. 5 Sold merchandise to Customer A on account for $ 72,000 plus 13% HST; terms n/30.

Apr. 6 Customer A returns one-half of the merchandise purchased on Apr 5 and receives a credit on account.

Apr. 13 Customer A paid their account balance in full.

Apr. 25 Sold merchandise to Customer B for $ 102,900 plus 13% HST; terms n/30.

Apr. 28 Received $ 22,000 from Customer C for services to be provided in May.

Apr. 30 Recorded any adjusting entries required related to April transactions.

In addition to liabilities arising from the above transactions, Crowe’s Accounts Payable balance at April 30, 2021 is $ 65,000.

Instructions

a) Record the above transactions.

b) Prepare the current liabilities portion of Crowe’s balance sheet at April 30, 2021.

Exercise 11

During the month of July, Happy Go Lucky Toy Company started a new promotion. The company offered to reward their customers for all sales made on Barbie dolls or Toy Trucks during the month of July. For each sale made, the customer will receive a 2% reward of the sales price, which can be redeemed on future purchases until December of the current year. Happy Go Lucky Toy Company estimates that 50% of the rewards will be redeemed. The stand-alone value of the rewards is $ 3,000. During the month of July, $ 150,000 of Barbie dolls and Toy Trucks were sold. There was $ 455 worth of redemptions in August.

Instructions

a) Prepare the journal entries to record all transactions related to the reward promotion.

b) Identify any liabilities that would be reported on the August 31, 2021, balance sheet.

Exercise 12

Duane Herman sells exercise machines for home use. The machines carry a 4-year warranty. Past experience indicates that 6% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is $ 45 for labour and $ 75 for parts per unit. During 2018, 2,500 exercise machines were sold at an average price of $ 800. During the year, 60 of the machines that were sold were repaired at the average price per unit. The opening balance in the Warranty Liability account is zero.

Instructions

a) Prepare the journal entry to record the repairs made under warranty.

b) Prepare the journal entry to record the estimated warranty expense for the year. Determine the balance in the Warranty Liability account at the end of the year.

Exercise 13

MoTown Appliances sells built-in ranges for $ 1,400 each. The price includes a one-year warranty. During 2021, the company sells 1,650 ranges. On the basis of past experience, the approximately 4% of units sold will require warranty replacement at an average cost of $ 450 per unit. The actual warranty costs paid by MoTown during 2021 were $ 25,000.

Instructions

a) Prepare journal entries to record the estimated warranty expense and the warranty payments during 2021.

b) Assuming the liability has an unadjusted credit balance of $ 900, what is the 2021 adjusted liability balance?

Exercise 14

Freeze Company sells residential freezers for $ 2,150 each. The price includes a two-year warranty. During 2021, the company sells 550 freezers. On the basis of past experience, the warranty costs are estimated to be $ 160 per freezer. The actual warranty costs paid by Freeze during 2021 were $ 55,000.

Instructions

a) Prepare journal entries to record the estimated warranty expense and the warranty payments during 2021.

b) Assuming the liability has an unadjusted credit balance of $ 4,300, what is the 2021 adjusted liability balance?

Exercise 15

Sean Screen Manufacturing began operations in January 2021. Sean manufactures and sells two different computer monitors.

Monitor A is a flat panel high-definition monitor, which carries a two-year manufacturer's warranty against defects in workmanship. Sean's management project that 6% of the monitors will require repair during the first year of the warranty while approximately 8% will require repair during the second year of the warranty. Monitor A sells for $ 400. The average cost to repair a monitor is $ 80.

Monitor B is a regular LED monitor that retails for $ 150. Sean has entered into an agreement with a local electronics firm who charges Sean $ 20 per monitor sold and then covers all warranty costs related to this monitor.

Sales and warranty information for 2021 is as follows:

1. Sold 2,000 monitors (800 monitor A and 1,200 monitor B); all sales were on account.

2. Actual warranty expenditures for monitor A were $ 4,000.

Instructions

a) Prepare journal entries that summarize the sales and any aspects of the warranty for 2021.

b) Determine the balance in the Warranty Liability account at the end of 2021.

Exercise 16

Jet Fuel Ltd. has a customer rewards program. For every litre of gas Jet Fuel sells, the customer is awarded one point. Each point is worth $ 0.10 off the purchase of future goods.

During the month of January, Jet Fuel had gas sales of $ 172,000 and sold 144,000 litres of gas. Jet Fuel estimates 60% of the points will be redeemed. During February, the actual value of the points redeemed is $ 7,250.

Instructions

a) Prepare the journal entry for the January sales.

b) Prepare the journal entry for February reflecting the actual loyalty points redemption.

Exercise 17

Dejong’s Dry Cleaning had the following events occur during December, 2021. Dejong reports under ASPE.

1. Dejong signed a $ 40,000 loan guarantee on behalf of Dejong Junior’s. At December 31, Junior’s had drawn $ 10,000 of loan advances. Junior’s has sufficient assets to cover its liabilities.

2. Dejong was sued by an irate customer who said the trousers that Dejong had returned to him belonged to someone else. The customer is claiming $ 10,000,000 in damages for distress because he mistakenly wore the ill-fitting trousers to work and suffered discomfort and embarrassment as a result. Dejong’s lawyer has advised them that the likelihood of this claim succeeding is nil, and has offered to defend them at no charge. The Dejongs have already paid the claimant $ 100 for replacement of the missing trousers.

3. Dejong was sued for wrongful dismissal by a former employee. The employee is claiming $ 2,000 in lost wages. Dejong’s lawyer has advised them that the claim, if taken to trial, is likely to be upheld.

4. In early December, some dry cleaning fluid spilled and damaged equipment valued at $ 5,600. Dejong replaced the equipment, which is insured, and expects their insurance policy will reimburse at least $ 5,000 of the cost and possibly the entire amount. However, the exact amount covered by insurance has not yet been determined.

Instructions

For each of the four situations above, evaluate the likelihood and measurability of any losses that Dejong may face. Indicate if any liability should be recorded or disclosed in Dejong’s December 31, 2021, financial statements.

Exercise 18

Below are several accounting transactions recorded by Lucy, accounting clerk for B&B Industrial.

1. Loss from Liability 500,000

Estimated Liability from Lawsuit 500,000

To setup a liability in which we are being sued for $ 500,000. The lawyers say it is unlikely that we will have to pay out this amount and the lawsuit will most likely be dismissed. I have set up the amount based on the best reasonable estimate. Even if the lawsuit is dismissed, this event will have a substantial negative effect on the company’s financial position.

2. No entry

B&B Industrial provided a guarantee on a loan for the company’s owner. The owner needed to obtain a large loan for medical purposes. No entry needed to account for the loan guarantee.

3. No entry

No entry needed to set up the reduction in wages that may be incurred due to employees going on strike.

4. Loss from decline in sales 150,000

Sales Revenue 150,000

To record the decline in sales due to a recession

5. Gain on Lawsuit 365,000

Accounts Receivable 365,000

To set up the amount that will be received when we win our lawsuit.

6. No Entry

No entry created for a lawsuit that we will most likely lose because a reasonable amount cannot be estimated.

Instructions

For each transaction, determine if the accounting clerk correctly recorded the transaction. If you disagree, provide the correct transaction or disclosure requirement.

Exercise 19

Amber Industries, a local concrete manufacturer, has encountered several situations during the 2021 fiscal year. The company follows ASPE. Identify whether each of the following possible contingencies should be recorded, disclosed, or not reported:

1. Amber is being sued by the municipality of Huntington for contaminating the town’s primary water source. If Amber is found responsible, the company will be required to remedy the waterway. Amber’s legal counsel believes there is a high likelihood that the company will be unsuccessful defending the suit. A specialist has estimated the restoration will cost between $ 1 million and $ 1.5 million.
2. Amber has guaranteed the debt of a related company in the amount of $ 2 million. The related company is currently in good financial health and is not intending to rely on Amber’s guarantee.
3. Amber has a history of lawsuits and has been found liable at least once in each of the past 5 years. Although Amber has not been sued in the current year, management would like to record a $ 50,000 provision for future lawsuits, which is the average payout over the past few years.
4. The government may expropriate Amber’s assets so that a new highway can be built. So far, there have been no discussions about exact amount but the government has assured Amber that the proceeds will exceed the assets’ net book value.
5. Amber is being sued for $ 500,000 for wrongful dismissal of a company executive.

Exercise 20

Milner Company is preparing adjusting entries at December 31. An analysis reveals the following:

1. During December, Milner Company sold 8,900 units of a product that carries a 60-day warranty. The sales for this product totalled $ 200,000. The company expects 5% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $ 30.

2. The company has been sued by a disgruntled employee. Legal counsel believes it is likely that the company will have to pay $ 150,000 in damages.

3. The company has been named as one of several defendants in a $ 350,000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages.

4. During December, ten employees earn vacation pay at a rate of 1 day per month. Their average daily wage is $ 160 per employee.

Instructions

Prepare adjusting entries, if required, for each of the four items.

Exercise 21

Haas Technologies' payroll for the monthly pay period ended September 25 amounted to $ 224,000. The following deductions were withheld from the employees’ salaries and wages:

Federal and provincial income taxes $ 62,900

CPP 11,088

EI 3,718

Union dues 2,500

Charitable donations 1,000

Instructions

Prepare the journal entry to record the monthly payroll ended September 25 and also the employer’s benefits expense on the payroll.

Exercise 22

The following unadjusted balances are taken from the trial balance of Jackson Equipment at December 31, 2021:

Accounts payable………… $ 53,700

Salaries payable……….. 2,200

Bank demand loan payable 60,000

HST payable…………… 14,800

Note payable, maturing March 31, 2022 10,000

Note payable, maturing March 31, 2023 100,000

Jackson Equipment sells and installs security systems. Beginning on December 1, 2021, Jackson began offering a 2-year product warranty. Based on research in the industry, Jackson’s management believes that 5% of security systems will require some warranty work and that the typical costs for systems requiring warranty work will be $ 875 during the first year and $ 325 during the second year. In December, Jackson supplied and installed 80 systems.

Instructions

a) Calculate and record Jackson’s warranty liability at December 31, 2021.

b) Prepare the current liability portion of Jackson’s balance sheet at December 31, 2021.

Exercise 23

Lawler Company's payroll for the week ended January 15 amounted to $ 52,000 for Office Salaries and $ 115,500 for Store Wages. The following deductions were withheld from employees' salaries and wages:

Federal and provincial income taxes $ 50,260

CPP 7,630

EI 3,300

Union dues 2,950

United way 1,500

Instructions

Prepare the journal entry to record the weekly payroll ended January 15 and also the employer’s benefits expense on the payroll.

Exercise 24

The following payroll liability accounts are included in the ledger of the David Croneberger Company on January 1, 2018:

Income Taxes Payable $ 4,700

CPP Payable 800

EI Payable 900

Union Dues Payable 400

Health Insurance Premium Payable (Liberty Health) 4,000

Canada Savings Bond Payable 1,000

In January, the following transactions occurred:

Jan 9 Sent a cheque for $ 4,000 to Liberty Health.

14 Sent a cheque for $ 400 to the union treasurer for union dues.

15 Paid the Canada Revenue Agency income taxes withheld from employees, Employment Insurance due, and Canada Pension Plan contributions due.

22 Sent a $ 1,000 cheque to the Bank of Canada for Canada Savings Bonds purchased on the payroll plan.

Instructions

Journalize the January transactions.

Exercise 25

The payroll records of Fraser Foods Company provide the following data for the bi-weekly pay period ended July 12.

CPP is 4.95% and EI is 1.66%.

Instructions

a) What is the net pay for each employee?

b) Prepare the journal entry to accrue the employee payroll on July 12.

c) Prepare the journal entry to record Jupiter’s payroll tax expense for July 12.

Exercise 26

Trapper Company has the following data for the weekly payroll ended March 31:

Employees are paid 1.5 times the regular hourly rate for all hours worked over 44 hours per week. Trapper Company must make payments to the workers’ compensation plan equal to 2% of the gross payroll. In addition, Ahmad matches the employees’ health insurance contributions and accrues vacation pay at a rate of 4%.

Instructions

a) Prepare the payroll register for the weekly payroll.

b) Record the payroll and Trapper Company’s employee benefits.

Exercise 27

Edmonton Company prepares a payroll register for the week ended February 15. The totals from the register are presented below. (Note: for illustration purposes, there is only one employee.)

Earnings:

Regular $ 400.00

Overtime 100.00

Gross $ 500.00

Deductions:

CPP 21.42

EI 9.15

Income Taxes 76.20

United Way 10.00

Union Dues 20.00

Total 136.77

Paid:

Net Pay $ 363.23

Accounts Debited:

Office Salaries Expense 500.00

Instructions

Prepare journal entries to record

a) the employee’s portion of the payroll on February 15.

b) the employer’s portion of the payroll on February 15.

c) payment of salaries and wages on February 15.

d) payment of payroll liabilities (excluding salaries and wages) on their respective due dates.

*Exercise 28

Assume that the payroll records of Crosby Oil Company provided the following information for the weekly payroll ended November 26, 2018:

Federal and Year-to-Date

Hourly Provincial Earnings Through

Employee Hours Worked Pay Rate Income Tax Union Dues Previous Week

C. White 44 $ 30 $ 240 $ 9 $ 61,000

J. Wozowski 46 10 65 5 23,200

K. Hurt 39 14 0 — 5,100

M. Khan 42 22 169 7 58,100

Additional information:

All employees are paid overtime at time and a half for hours worked in excess of 44 per week. The CPP rate is 4.95% less a basic annual exemption of $ 3,500 per employee.

The employment insurance deduction is 1.66%.

Maximum pensionable earnings are $ 55,900 and maximum insured earnings for EI are $ 51,700.

Instructions

a) Prepare the payroll register for the pay period.

b) Prepare general journal entries to record the payroll and payroll costs.

*Exercise 29

Karen Blake’s salary earned in 2018 to November 30 was $ 62,000. Her salary in December 2018 was $ 6,000. Jim Fayad began working with the company on December 1 and will be paid his first month's salary of $ 5,000 on December 31. Income tax withholding for December for each employee is as follows:

Karen Blake Jim Fayad

Federal and Provincial Income Tax $ 1,920 $ 1,600

The following payroll tax rates are applicable:

CPP⁽¹⁾ 4.95%

EI 1.66%

⁽¹⁾Less a basic annual exemption of $ 3,500 per employee

Instructions

Record the payroll for the two employees at December 31 and record the employer's share of payroll tax expense for the December 31 payroll. Maximum pensionable earnings are $ 55,900 and maximum insured earnings for EI are $ 51,700.

*Exercise 30

Sally Smith earns a salary of $ 5,500 per month during the year. Employment Insurance taxes (EI) are 1.66% of the first $ 51,700 in earnings. The Canadian Pension Plan (CPP) rate is 4.95% of the first $ 55,900 in earnings, less a basic annual exemption of $ 3,500. During the year, $ 23,000 was withheld for income taxes.

Instructions

a) Prepare a journal entry summarizing the payment of Smith's total salary during the year.

b) Prepare a journal entry summarizing the employer’s payroll tax expense on Smith's salary for the year.

c) Determine the cost of employing Smith for the year.

*Exercise 31

Harrison Company employees had the following earnings records at the end of August 2021:

Employee Year-to-Date Earnings Earnings for August 31

through Last Pay Period Pay Period

(one week pay period)

L. Wilkins $ 56,500 $ 672

J. Bird 31,200 425

L. Bryant 16,750 248

K. James 10,110 196

D. Irving 22,800 330

Harrison's payroll for each employee include 4.95% CPP on the maximum pensionable earnings of $ 55,900, and an EI rate of 1.66% paid to a maximum of $ 51,700 annually. As well, $ 400 federal and provincial income taxes will be deducted from the combined employees' gross pay for the week.

Instructions

Prepare the journal entries to record

a) the August 31 payroll accrual.

b) the employer payroll tax expense for August 31.

*Exercise 32

The payroll records of Jupiter Company provide the following data for the weekly pay period ended June 17:

CPP is 4.95% and EI is 1.66%

Instructions

a) Prepare the general journal entry to accrue the employee payroll on June 17.

b) Prepare the general journal entry to record Jupiter’s payroll tax expense for June 17.

Exercise 33

Gloria Company’s December 31, 2021, trial balance includes the following accounts:

Accounts payable $ 29,400

Accounts receivable 52,000

Interest payable 700

Bank demand loan payable 10,000

Cash………….. 3,000

Income taxes payable 1,200

Inventory……………. 27,000

Mortgage payable 60,000

Note payable…………. 5,000

Prepaid expenses 1,200

Other information:

The mortgage payable is due in annual principal installments of $ 4,000 per year.

The note payable is due in full in 18 months’ time.

Industry average working capital ratio is 2.5:1

Instructions

a) Prepare the current liabilities section of Gloria’s December 31, 2021, balance sheet.

b) Calculate and comment on Gloria’s working capital and current ratio.

Exercise 34

The following are all of the accounts with credit balances from Kupidy Company’s adjusted trial balance at December 31, 2021:

Accounts payable $ 66,000

Accumulated depreciation – equipment 31,500

Allowance for doubtful accounts 1,600

Bank demand loan payable 25,000

C. Kupidy, capital 47,500

Gain on sale of equipment 600

HST payable 1,900

Interest payable 2,100

Mortgage payable 290,000

Note payable 18,000

Salaries payable 4,400

Sales revenue 458,000

Unearned revenue 7,900

Other information:

The mortgage is due in monthly principal payments of $ 1,000 plus interest.

The note payable is a six-month, 10% note, interest due at maturity.

Instructions

Prepare the current liabilities section of Kupidy’s December 31, 2021, balance sheet.

Exercise 35

On February 28, 2021, Fidanza Company has the following selected accounts after posting adjusting entries:

Accounts payable $ 40,000

Notes payable, 3-month, 6% 80,000

Accumulated depreciation—equipment 14,000

Salary, wages, and benefits payable 22,000

Notes payable, 5-year, 8% 30,000

Warranty liability 34,000

Employee benefits expense 6,000

Interest payable 3,000

Mortgage payable 150,000

HST payable (net) 15,000

Instructions

a) Prepare the current liabilities section of Fidanza Company's balance sheet, assuming $ 25,000 of the mortgage is payable next year. (List liabilities in order of maturity.)

b) Comment on Fidanza's liquidity, assuming total current assets are $ 400,000.

Exercise 36

Mel’s Building Centre has three obligations outstanding on December 31, 2021, as follows:

1. Six-year, $ 75,000, 5%, note payable issued on December 31, 2019. Mel’s Building Centre is required to pay $ 12,500 plus interest on December 31 each year starting in 2020.

2. Five-year, $ 90,000, 4.5%, note payable issued on November 30, 2020. Mel’s Building Centre is required to pay $ 1,500 plus interest at the end of each month starting on December 31, 2020.

3. Twenty-year, $ 600,000, 3.75%, mortgage payable issued on April 1, 2004. Mel’s Building Centre is required to pay $ 2,500 plus interest at the end of each month starting on May 1, 2004.

Instructions

Calculate the amount of each note to be included in current and non-current liabilities on Mel’s Building Centre December 31, 2021, balance sheet. Ignore interest.

Exercise 37

Laabs Brewery has the following notes payable outstanding on October 31, 2021:

1. A five-year, 5%, $ 40,000 note payable issued on February 28, 2020. Laabs Brewery is required to pay $ 8,000 plus interest on February 28 each year starting in 2021.

2. A ten-month, 6%, $ 45,000 note payable issued on July 1, 2021. Interest and principal are payable at maturity.

3. A 30-month, 4%, $ 100,000 note payable issued on August 1, 2020. Laabs Brewery is required to pay $ 3,333.33 plus interest on the first day of each month starting on September 1, 2020.

Instructions

a) Calculate the current portion of each note payable at October 31, 2021.

b) Calculate the non-current portion of each note payable at October 31,2021.

c) Calculate any interest payable at October 31, 2021.