Joan’s Golf Shop Ltd. had the following transactions involving current liabiliti

Question

Joan’s Golf Shop Ltd. had the following transactions involving current liabilities in its first year of operations: 1. The company ordered golf equipment from suppliers for $571,100, on credit. It paid $531,400 to suppliers during the year. 2. The shop has seven employees, who earn gross wages of $243,000 for the year. From this, the company deducted 22% for income taxes, $10,890 in CPP premiums, and $4,350 in EI premiums before distributing the cheques to the staff. As an employer, Joan was also required to match the employees’ CPP premiums and pay $6,090 in EI premiums. Eleven-twelfths of the amounts due to the government (all except the last month) were paid before the end of the year. 3. The company gives customers a one-year warranty on golf clubs. Management estimated that warranty costs would total 2% of sales. Sales of golf clubs for the year were $990,000. During the year, the company spent $11,800 to replace faulty golf clubs under the warranty. 4. Some customers order very expensive, custom-made golf clubs. In these cases, the company requires them to pay a deposit of 50% of the selling price when the order is placed. During the year, deposits totalling $18,700 were received for custom orders. None of these orders have been delivered yet. a. Prepare journal entries to record the transactions. b. Prepare the current liabilities section of the statement of financial position as it would appear at the end of the year.

Explanation / Answer

Journal Entries Date Account Titles Debit Credit 1 Equipment 571100 Accounts Payable 571100 Accounts Payable 531400 Cash 531400 2 Salaries and Wage expenses 259980 =243000-10890-4350 CPP premiums Payable 21780 =2 x 10890 EI Premium Payable 10440 =4350+6090 Cash 227760 CPP premiums Payable 19965 =21780/12 x 11 EI Premium Payable 9570 =10440/12 x 11 Cash 29535 3 Warranty Expenses 19800 =990000*2% Warranty Allowance 19800 Warranty Expenses 11800 Cost of Goods Sold 11800 4 Cash 18700 Unearned Sales Revenue 18700 Current Liabilities: Accounts Payable 39700 CPP premiums Payable 1815 EI Premium Payable 870 Warranty Allowance 19800 Unearned Sales Revenue 18700 Current Liabilities: 80885

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