Chapter 13

Question 1

13-12 - Warranty calculations / Accounting for warranties

Answer 1

• always consider the cost to you, NOT THE SALES PRICE (most likely COGS, inventory, labour hours etc)
• multiple steps:
  1. the percentage of sales that will return
  2. calculate the cost to replace defective batteries (including freight, subtracting any salvage value)
  3. if there is a schedule, calculate how much percentage of the remaining batteries remain to be returned.

Question 2

13-1 (1)- Current liability entries and adjustments

1. periodic system = you record…
2. 2/10
3. recording (tax)instalments for the current year tax liability
4. declaring cash dividends:
5. recording the payout of dividends:

Answer 2

1. Purchases (not Inventory)
2. you take the discount (REPRESENTATIONAL FAITHFULNESS) and if you don’t pay in time = finance problem : DR. PURCHASE DISCOUNT LOSS

3.

dr. Income Tax Expense
cr. Cash
4. record the liability at the date of declaration:
dr. Retained Earning (Dividend Declared)
cr. Dividends Payable

5.

dr. Dividends Payable
cr. Cash

Question 3

13-1 (2) - Current liability entries and adjustments

1. recording a deposit that will have to be returned:
2. buying something on account and paying GST and PST:

Answer 3

1. dr. Cash - (that’s what I get: money)
   cr. RETURNABLE DEPOSIT
2. • the value of the furniture is what they said it is (ex: 8,000) + the PST because it is not recoverable
     - dr. GST RECEIVABLE - calculate the GST (5%)
     cr. A/P / Cash ( credit for the whole amount)

Ex:

dr. Furniture 8,640
dr. GST receivable 400
cr. A/P 9,040

Question 4

13-1 (3) 1. JE when you sell something that includes GST and PST

Answer 4

dr. Cash (received) = the whole amount (revenue + taxes).
cr. Sales revenue = the amount without taxes!

Cr. GST PAYABLE

Cr. Sales Tax payable

Question 5

13-1 (4)

1. if anything is calculated as a percentage of sales, it means…
2. recording an asset retirement obligation
3. if they tell you how much was the tax rate (when you already paid instalments during the year)

Answer 5

1. …that you use the amount that went in Sales Revenue account
2. Dr. THE ASSET

Cr. A LIABILITY (Asset retirement obligation)

3. calculate how much the taxes were supposed to be and make an adjustment for the difference.

Question 6

13-1

1. What are the adjusting entries at the end of the year?
2. Reporting current liabilities (b)

Answer 6

1. • interest expense for notes payable. DON’T FORGET ABOUT THE NOTES PAYABLE FROM A NON-INTEREST BEARING NOTE (Dr. Interest Expense

Cr. Notes Payable (increase the N/P so you will get to the initial value - you recorded at 83k, you need to bring it to 92k) - notes payable (accrued in a way - if you used the net method)

2. • have separate T accounts for A/P, and different N/P - interest payable (add it on a note payable if it’s within a year)
     - Sales tax payable
     - GST payable
     - rent payable

Question 7

P13-10 Warranties, accrual and cash basis

1. cash basis for warranty
2. if the Wtty is not sold separately - accrual basis

Answer 7

1. no accrual for warranties
2. you record the Sales normally and then another entry to account for the warranties:
   dr. Warranty expense
   cr. WTTy payable

Question 8

P13-10 (warranty for 2 years)

1. Liabilities at Dec 31
2. Recording the warranty expense when it happens (expense approach)

Answer 8

1. divide them in two (if the warranty is for 2 years). One goes in CURRENT LIABILITY and the other in LONG-TERM LIABILITIES
2. dr. Warranty LIABILITY (Wtty expense acc - if it’s cash basis)
   cr. Inventory (for parts used)
   cr. Salaries and wages payable (for labour)