Assignment Week 11 Bus251 Summer 2020 1) Uselessstuff

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Assignment Week 11 Bus251 Summer 2020

1) Uselessstuff.com sells various electronic items online. The company also sells gift cards that can be used to purchase items from the Uselessstuff.com website. These cards cannot be redeemed for cash. At the beginning of 2015, Uselessstuff.com had a balance of $75,000 in its "gift card liability" account. During 2015, it sold $150,000 in gift cards and $60,000 worth of gift cards were redeemed for merchandise that cost Uselessstuff.com $35,000. It is estimated that 2% of the "gift card liability" at the end of 2015 won't be redeemed by customers. a. Prepare the journal entries to record to sale of gift cards and redemption of gift cards in 2015 b. Record the yearend adjusting entry to record the gift cards that won't be redeemed. c. What is the 2015 yearend balance in the "gift card liability account after the above adjusting entry? d. How would the sale of gift cards affect the current ratio?

 

2. Explain and discuss two specific examples of how a company could manage earnings in the current year through specific accounting policies, choices or estimations.

 

3. Gibco Limited has an October 31 year end. On October 1, 2020 Gibco had the following current liabilities listed on its books: Bank credit line ................................ $23,250 Accounts payable ............................. 100,500 CPP, EI and income tax payable ....... 9,620 Unearned revenues ......................... 12,000

 

During October 2020 Gibco engaged in the following transactions: Oct 1 Paid $20,000 on the credit line with their bank Oct 5 Sold goods worth $30,000 on which they had previously received a $12,000 deposit. The balance is due in 30 days. Oct 12 Bought $20,000 of inventory on credit, terms of 30 days.

 

 

Oct 15 Paid amounts due the Government of Canada for the payroll amounts outstanding from September 30. Oct 20 Paid $87,000 owing to a supplier. Oct 21 Received $5,000 from a client for work that will be performed in January 2021. Oct 21 Sold $56,000 of goods half for cash, half on credit. Oct 30 Paid the monthly payroll amounts to employees. The gross payroll was $16,200. Amounts withheld from the employees' cheques were as follows: • Canada pension plan premiums (CPP) $802 • Employment insurance premiums (EI) $259 • Income tax $2,800 At this time, the company also recorded their liability for amounts due to the government for CPP and EI. Oct 31 Declared $5,000 of dividends payable next year.

 

Instructions

Prepare the current liabilities section of the statement of balance sheet at October 31, 2020.