Exam 1: Current Liabilities and Contingencies

A company, using a perpetual inventory system, sells goods on credit for $10,000. The applicable PST rate is 5% and the cost of goods sold was $6,000. Sales taxes are remitted on a monthly basis. Prepare the necessary journal entries for this transaction.

Why is it important to distinguish financial from non-financial liabilities?

For a $200,000 trade payable with terms of 2/15, net 50, how much would be reported as "purchase discount lost" under the net method if a payment was made after 60 days?

Which statement about contingent assets is correct?

For each independent situation: 1. Moosehead Pool and Skeet Com.'s debt to equity ratio is 1.6: 1 based on its draft financial statements for the year ended December 31, 2020. This leverage ratio exceeds the 1.5:1 maximum stipulated in Moosehead's loan agreement pertaining to a $5,000,000 loan maturing on March 15, 2023. The loan agreement stipulates that the loan becomes payable on demand upon breach of any of the loan covenants. Moosehead's creditors agreed on December 15, 2020 to waive their right to demand payment until December 31, 2021 for reason only that the firm's leverage ratio exceeds the stipulated maximum. 2. Guelph Piano Storage Inc. issued a $30,000, 30-day, non-interest bearing note to Roland's Crating for storage bins. The market rate of interest for similar transactions is 2.5%. 3. On November 30, 2019, Port Meadow Fertilizer Ltd. entered into a non-cancellable agreement to buy 10 tonnes of phosphorus for $1,600 per tonne for delivery on February 28, 2020. Phosphorus is a key component of the custom fertilizer that Port Meadow produces. The market price of phosphorus is extremely volatile, as evident by the $1,175 per tonne that it could be acquired for on December 31, 2019. Notwithstanding the premium price paid for the phosphorus, the company expects that fertilizer sales will remain profitable. Port Meadow's year-end is December 31, 2019. Required: For each of the situations described above, prepare the required journal entry for the underlined entity. If a journal entry is not required, explain why.

Which is true about lines of credit?

Which of the following characteristic is required for a liability under IFRS Framework?

Which statement is correct?

Which of the following is a financial liability?

Why is it important to distinguish current liabilities from long-term liabilities?

Explain the difference between "probable," "possible," and "remote" under IFRS.

For each independent situation: 1. A former employee of Melvin Minimarket Inc. sued the company for $900,000, alleging that the company owner sexually harassed her. Melvin's lawyers suggest that the lawsuit has a 30-40% probability of success and that, if successful, the plaintiff will be awarded between $400,000 and $500,000. 2. Leduc Pyrotechnics Ltd. received a $15,000 fee to guarantee the $800,000 bank indebtedness of Kenora Fireworks Inc. The fair value of the guarantee is initially estimated to be $15,000. 3. Montomery Syringes Co. sued a competitor for $800,000, alleging corporate espionage. Montomery's legal counsel believes that the company will be successful and will be awarded somewhere in the range of $650,000 to $800,000. Required: Describe how the event should be dealt with in the financial statements and explain why. Prepare all required journal entries.

Which of the following characteristic is required for a "liability" under IFRS Framework?

Which statement about contingencies is correct?

Which is an example of a liability?

Which of the following liabilities can potentially be reported as either or both a current and a non-current liability?

Which statement is correct?

A supplier sued Pneumatic Systems Inc. for $200,000 for breach of contract. Pneumatic's legal counsel believes that they will almost certainly be found liable. Based on previous results, the lawyer estimates that there is a 60% probability that the supplier will be awarded the $200,000; a 30% probability that the judgment will be $150,000; and a 10% probability that $100,000 will be conferred. Assuming that Pneumatic reports its financial results in accordance with IFRS, indicate which of the following will be the appropriate accounting treatment:

Which statement regarding liabilities is not correct under the IFRS Framework?

Which statement is correct?