Financial Accounting Chapter 10 Solution, Weygandt, IFRS 4/e PDF

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Copyright © 2019 WILEY Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual (For Instructor Use Only) 10-CHAPTER 10Current LiabilitiesASSIGNMENT CLASSIFICATION TABLELearning Objectives QuestionsBrief Exercises Do It! Exercises Problems Explain how to account for current liabilities. 1, 2, 3, 4...

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CHAPTER 10 Current Liabilities ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions

Brief Exercises

Do It!

Exercises

Problems

1.

Explain how to account for current liabilities.

1, 2, 3, 4, 7, 8, 9

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11

1

1, 2, 3, 4, 5, 6, 7, 11, 12

1, 2, 3, 4, 5

2.

Discuss how current liabilities are reported and analyzed.

5, 6, 10, 11

12, 13, 14

2

8, 9, 10, 13, 14, 15

1, 5, 6

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10-1

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

10-2

Description

Difficulty Level

Time Allotted (min.)

1

Prepare current liability entries, adjusting entries, and current liabilities section.

Moderate

30–40

2

Journalize and post note transactions and show statement of financial position presentation.

Moderate

30–40

3

Record payroll expense.

Moderate

20–30

4

Record payroll expense.

Simple

20–30

5

Determine financial statement impact of current liabilities.

Moderate

15–20

6

Compute current ratio and working capital.

Simple

5–8

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WEYGANDT FINANCIAL ACCOUNTING IFRS 4E CHAPTER 10 CURRENT LIABILITIES Number

LO

BT

Difficulty

Time (min.)

BE1

1

C

Simple

3–5

BE2

1

AP

Simple

2–4

BE3

1

AP

Simple

2–4

BE4

1

AP

Simple

5–7

BE5

1

AP

Simple

5–7

BE6

1

AP

Simple

6–8

BE7

1

AP

Simple

2–4

BE8

1

AP

Simple

5–7

BE9

1

AP

Simple

3–5

BE10

1

AP

Simple

3–5

BE11

1

AP

Simple

2–4

BE12

2

AN

Simple

1–2

BE13

2

AP

Simple

5–7

BE14

2

AP

Simple

2–4

DI1

1

C

Simple

6–8

DI2

2

AP

Simple

8–10

EX1

1

AN

Moderate

8–10

EX2

1

AN

Simple

6–8

EX3

1

AP

Simple

4–6

EX4

1

AP

Simple

6–8

EX5

1

AN

Simple

6–8

EX6

1

AP

Moderate

10–12

EX7

1

AP

Simple

6–8

EX8

2

AP

Simple

10–12

EX9

2

AN

Moderate

8–10

EX10

2

AP

Simple

4–6

EX11

2

AP

Simple

8–10

EX12

1

AP

Moderate

12–15

EX13

2

C

Simple

8–10

EX14

2

AP

Simple

6–8

EX15

2

AP

Simple

4–6

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10-3

CURRENT LIABILITIES (Continued) Number

LO

BT

Difficulty

Time (min.)

P1

1, 2

AN

Moderate

30–40

P2

1

AN

Moderate

30–40

P3

1

AN

Simple

30–40

P4

1

AN

Moderate

30–40

P5

1, 2

AN

Moderate

15–20

P6

2

AP

Simple

5–10

CT1

2

C

Simple

10–15

CT2

2

AN

Simple

10–15

CT3

1

E

Moderate

15–20

CT4

1

C

Simple

10–15

CT5

1

E

Simple

10–15

10-4

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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Learning Objective

Knowledge

Comprehension

Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

1. Explain how to account for current Q10.8 liabilities. Q10.10

Q10.1 Q10.2 Q10.7 Q10.9 BE10.1 DI10.1

2. Discuss how current liabilities are reported and analyzed.

Q10.5 Q10.6 E10.13

Expand Your Critical Thinking

Financial Reporting Communication

Q10.11

Application

Analysis

Q10.3 Q10.4 BE10.2 BE10.3 BE10.4 BE10.5 BE10.6 BE10.7 BE10.8 BE10.9 BE10.10 BE10.11

E10.4 E10.6 E10.7 E10.3 E10.11 E10.12 P10.6

E10.1 E10.2 E10.5 P10.1 P10.2 P10.3

BE10.13 BE10.14 DI10.2 E10.7 E10.10

E10.8 E10.12 E10.14 E10.15 P10.6

BE10.12 E10.9 P10.1 P10.5

Synthesis

Evaluation

P10.4 P10.5

Comparative Analysis

Decision Making Across the Organization Ethics Case

BLOOM’S TAXONOMY TABLE

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Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

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10-5

ANSWERS TO QUESTIONS 1.

Anjali is not correct. A current liability is a debt that a company expects to pay within one year or the operating cycle, whichever is longer.

2.

In the statement of financial position, Notes Payable of €40,000 and Interest Payable of €700 (€40,000 X .07 X 3/12) should be reported as current liabilities. In the income statement, Interest Expense of €700 should be reported under other expenses and losses.

3.

(a) Disagree. The company only serves as a collection agent for the taxing authority. It does not report value-added taxes as an expense; it merely forwards the amount paid by the customer to the government. (b) The entry to record the proceeds is: Cash......................................................................................... 8,400 Sales Revenue ................................................................. 8,000 Sales Taxes Payable ........................................................ 400

4.

(a) The entry when the tickets are sold is: Cash......................................................................................... 1,200,000 Unearned Ticket Revenue ................................................ 1,200,000 (b) The entry after each game is: Unearned Ticket Revenue ........................................................ Ticket Revenue.................................................................

200,000 200,000

5.

Liquidity refers to the ability of a company to pay its maturing obligations and meet unexpected needs for cash. Two measures of liquidity are working capital (current assets – current liabilities) and the current ratio (current assets ÷ current liabilities).

6.

A provision is a liability of uncertain timing or amount. An example of a provision is warranties expense or product guarantees.

7.

Gross pay is the amount an employee actually earns. Net pay, the amount an employee is paid, is gross pay reduced by deductions, such as social security taxes, union dues, income taxes, etc. Gross pay should be recorded as salaries and wages expense.

8.

Both employees and employers are required to pay Social Security taxes.

9.

No. When an employer withholds income taxes from employee paychecks, the employer is merely acting as a collection agent for the taxing body. Since the employer holds employees’ funds, these withholdings are a liability for the employer until they are remitted to the government.

10.

Working capital is the excess of current assets over current liabilities while the current ratio is calculated as current assets divided by current liabilities. They are similar in that they are both measures of a company’s liquidity – the ability to pay maturing obligations and meet unexpected needs for cash.

10-6

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Questions Chapter 10 (Continued) 11.

(1) The liability for warranties should be recorded as the estimated cost of honoring product warranty contracts in the period in which the sale occurs. (2) The liability for the purchase of goods on credit is recorded at the time the goods are acquired. (3) The liability for a profit-sharing bonus should be recorded in the period the employee earns the bonus.

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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10-7

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 10.1 (a) A note payable due in two years is a long-term liability, not a current liability. (b) $30,000 of the mortgage payable is a current maturity of long-term debt. This amount should be reported as a current liability; the remainder should be reported as a non-current liability. (c) Interest payable is a current liability because it will be paid out of current assets in the near future. (d) Accounts payable is a current liability because it will be paid out of current assets in the near future.

BRIEF EXERCISE 10.2 July 1 Dec. 31

Cash ................................................................. Notes Payable ..........................................

60,000

Interest Expense ............................................. Interest Payable (HK$60,000 X 10% X 1/2) .....................

3,000

60,000

3,000

BRIEF EXERCISE 10.3 Sales tax payable (1) Sales = €15,600 = (€16,380 ÷ 1.05) (2) Sales taxes payable = €780 = (€15,600 X 5%) Mar. 16

10-8

Cash ................................................................. Sales Revenue ........................................... Sales Taxes Payable..................................

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16,380

Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

15,600 780

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BRIEF EXERCISE 10.4 (a)

(b)

Accounts Receivable ............................................. Sales Revenue............................................... Value-Added Taxes Payable (€30,000 X 6% = €1,800) .............................

31,800

Cash ....................................................................... Sales (€20,670 ÷ 1.06 = €19,500)................... Value-Added Taxes Payable.........................

20,670

30,000 1,800 19,500 1,170

BRIEF EXERCISE 10.5 Salaries and Wages Expense ........................................ Social Security Taxes Payable ............................. Income Taxes Payable .......................................... Insurance Premiums Payable............................... Salaries and Wages Payable ................................

24,000 1,920 2,990 250 18,840

BRIEF EXERCISE 10.6 8/1/20

12/31/20

Cash .............................................................. Unearned Subscription Revenue (12,000 X €18) ....................................

216,000

Unearned Subscription Revenue .................. Subscription Revenue (€216,000 X 5/12 = €90,000) ..............

90,000

216,000

90,000

BRIEF EXERCISE 10.7 Cash ................................................................................ Unearned Ticket Revenue ...................................... (To record sale of 4,000 season tickets)

840,000

Unearned Ticket Revenue.............................................. Ticket Revenue ....................................................... (To record basketball ticket revenue)

70,000

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70,000

10-9

BRIEF EXERCISE 10.8 December 31, 2020 Salaries and Wages Expense ...................................... Salaries and Wages Payable ..............................

350,000

February 15, 2021 Salaries and Wages Payable ....................................... Cash ....................................................................

350,000

350,000

350,000

BRIEF EXERCISE 10.9 Gross earnings .............................................................. Less: Social security taxes payable (€800 X 6%) ....... Income taxes payable ........................................ Net pay ...........................................................................

€800 €48 95

143 €657

BRIEF EXERCISE 10.10 a. Jan.

15

Salaries and Wages Expense .................. Social Security Taxes Payable (€800 X 6%) ........................................... Income Taxes Payable ............................. Salaries and Wages Payable ...................

800

b. Salaries and Wages Payable ...................................... Cash .................................................................

657

48 95 657 657

BRIEF EXERCISE 10.11 Jan. 31

10-10

Payroll Tax Expense........................................ Social Security Taxes Payable ($80,000 X 7.65%) ..................................

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6,120

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6,120

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BRIEF EXERCISE 10.12 Dec. 31

Warranty Expense ......................................... Warranty Liability .................................. [(1,000 X 5%) X €90]

4,500 4,500

BRIEF EXERCISE 10.13 (a)

(b)

Lawsuit Loss ....................................................... Lawsuit Liability ..........................................

900,000 900,000

No entry is necessary. The loss is not accrued because it is not probable that a liability has been incurred at December 31, 2020.

BRIEF EXERCISE 10.14 (a) Working capital = $4,594,772 – $1,717,728 = $2,877,044 (thousand) (b) Current ratio = $4,594,772 ÷ $1,717,728 = 2.67:1

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10-11

SOLUTIONS FOR DO IT! EXERCISES DO IT! 10.1 1. 2. 3.

€70,000 X 6% X 5/12 = €1,750 €42,000/1.05 = €40,000; €40,000 X 5% = €2,000 €45,000 X 2/6 = €15,000

DO IT! 10.2 (a) Current liabilities Notes payable ................................................... Accounts payable............................................. Unearned service revenue ............................... Salaries and wages payable ............................ Lawsuit liability ................................................ Long-term debt due within one year ............... Total current liabilities ...............................

NT$ 40,000 63,000 70,000 32,000 25,000 90,000 NT$320,000

(b) Working capital = Current assets – Current liabilities = NT$570,000 – NT$320,000 = NT$250,000 Current ratio: Current assets ÷ Current liabilities = NT$570,000 ÷ NT$320,000 = 1.78:1

10-12

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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SOLUTIONS TO EXERCISES EXERCISE 10.1 July 1, 2020 Cash ...................................................................... Notes Payable ................................................

50,000

November 1, 2020 Cash ...................................................................... Notes Payable ................................................

60,000

December 31, 2020 Interest Expense (NT$50,000 X 8% X 6/12) .................................. Interest Payable .............................................

50,000

60,000

2,000 2,000

Interest Expense (NT$60,000 X 6% X 2/12) .................................. Interest Payable .............................................

600

February 1, 2021 Notes Payable....................................................... Interest Payable.................................................... Interest Expense .................................................. Cash ...............................................................

60,000 600 300

April 1, 2021 Notes Payable....................................................... Interest Payable.................................................... Interest Expense .................................................. Cash ...............................................................

50,000 2,000 1,000

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600

60,900

(For Instructor Use Only)

53,000

10-13

EXERCISE 10.2 (a) June 1 Cash.......................................................... Notes Payable ...................................

90,000

(b) June 30 Interest Expense ...................................... Interest Payable [($90,000 X 8%) X 1/12] ................

600
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