Joan’s Golf Shop Ltd. had the following transactions involving current liabilities in its first year of operations:
1. The company ordered golf equipment from suppliers for $546,000, on credit. It paid $505,000 to suppliers during the year.
2. The shop has seven employees, who earn gross wages of $230,000 for the year. From this, the company deducted 22% for income taxes, $11,300 in CPP premiums, and $4,300 in EI premiums before distributing the cheques to the staff. As an employer, Joan was also required to match the employees’ CPP premiums and pay $6,020 in EI premiums. Eleven-twelfths of the amounts due to the government (all except the last month) were paid before the end of the year.
3. The company gives customers a one-year warranty on golf clubs. Management estimated that warranty costs would total 2% of sales. Sales of golf clubs for the year were $1.1 million. During the year, the company spent $13,000 to replace faulty golf clubs under the warranty.
4. Some customers order very expensive, custom-made golf clubs. In these cases, the company requires them to pay a deposit of 50% of the selling price when the order is placed. During the year, deposits totalling $20,000 were received for custom orders. None of these orders have been delivered yet.
a. Prepare journal entries to record the transactions.
b. Prepare the current liabilities section of the statement of financial position as it would appear at the end of the year.

  • CreatedJune 11, 2015
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