Flinn Limited had the following events during 2015. The company has a Dec. 31 ye
ID: 2454034 • Letter: F
Question
Flinn Limited had the following events during 2015. The company has a Dec. 31 year-end.
Required:
For each item described below, indicate the Liability account(s) and the related $ amount(s) to be reported as a Current Liability(ies) on the Flinn Limited Balance Sheet at December 31, 2015. Remember to show your calculations. Please round your answer to the nearest dollar.
1. Flinn Limited purchased inventory for $50,000 on account on December 15, 2015. This amount will be paid on January 14, 2016.
2. Flinn Limited made sales of $70,000 in December of 2015. 15% HST was charged on these sales and collected from customers. The HST will be remitted to Canada Revenue Agency (taxing authority in Canada) in January of 2016.
3. Flinn Limited is being sued for patent infringement. Flinn Limited’s lawyers believe that they will lose the lawsuit (75% likelihood) and estimate that Flinn Limited will be charged $40,000 in damages. The case goes to court in February of 2016 and will be settled by the summer of 2016.
4. Flinn Limited is being sued for $10,000 by a former employee for wrongful dismissal. Flinn Limited’s lawyers are not sure whether they will win the lawsuit or not. The lawyers estimate the likelihood of loss at 25%. The case goes to court in February of 2016 and will be settled by the summer of 2016.
5. Flinn Limited has an operating line with Regal Bank. The maximum amount that can be drawn on the operating line is $100,000. On December 31, 2015, Flinn Limited had $20,000 outstanding on the operating line. This balance had been outstanding since November 15, 2015. Interest is charged monthly at an annual rate of 8%. Monthly interest is paid on the 5th day of the following month. (ie – interest charges for December 2015 will be paid on January 5th).
6. At December 31, Flinn Limited has a $250,000 long-term loan from a local bank, of which $25,000 is due during 2016.
7. Flinn Limited received $10,000 from customers in late December 2015. This was an advance payment for work to be completed by Flinn Limited in early 2016.
8. Employees will be paid wages totalling $23,000 on January 13, 2016. This payment will cover work performed by the employees between Dec 24th 2015 and January 6, 2016. The wages of $23,000 were earned evenly over the pay period.
Account Name Reported as Current Liability
Amount ($) at December 31, 2015
Supporting Calculation
(if applicable)
1
2
3
4
5
6
7
Account Name Reported as Current Liability
Amount ($) at December 31, 2015
Supporting Calculation
(if applicable)
1
2
3
4
5
6
7
Explanation / Answer
Serial No. Account Name Reported as Current Liability Amount ($) at Dec 31, 2015 Supporting Calculation 1 Accounts Payable 50000 2 HST Payable 10500 15% of $70000 = $10500 3 Provision for Lawsit damages 40000 US GAAP does not recognise discounting of contingency loss when recorded 4 Provision for Lawsit damages by the employee Nil As the company is not sure of the outcome of the lawsuit , there should be a disclosure regarding this but no liability will be recognised on the face of the Financila Statement 5 Interest payable 200 20000*(1.5/12)*8% 6 Loan Instalment payable 25000 Since $25000 is to be paid within one year, it has been recognised as current liability 7 Wages payable 13800 Salary for 6 days out of 10 working days in between Dec 24, 2015 to Jan, 6 2016
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