The following are selected transactions of Pendlebury Department Store Ltd. for the current year ending December 31.
1. On February 2, the company purchased goods having cash discount terms of 2/10, n/30 from Hashmani Limited for $46,000. Purchases and accounts payable are recorded using the periodic system at net amounts after cash discounts.
The invoice was paid on February 26.
2. On April 1, Pendlebury purchased a truck for $50,000 from Schuler Motors Limited, paying $5,000 cash and signing a one-year, 8% note for the balance of the purchase price.
3. On May 1, the company borrowed $83,000 from First Provincial Bank by signing a $92,000 non-interest-bearing note due one year from May 1.
4. On June 30 and December 31, Pendlebury remitted cheques for $19,000 each as instalments on its current year tax liability.
5. On August 14, the board of directors declared a $13,000 cash dividend that was payable on September 10 to share holders of record on August 31.
6. On December 5, the store received $750 from Jefferson Players as a deposit on furniture that Jefferson Players is using in its stage production. The deposit is to be returned to the theatre company after it returns the furniture on January 15.
7. On December 10, the store purchased new display cases for $8,000 on account. Sales tax of 8% and GST of 5% were charged by the supplier on the purchase price.
8. During December, cash sales of $79,000 were recorded, plus 8% sales tax and 5% GST that must be remitted by the 15th day of the following month. Both taxes are levied on the sale amount to the customer.
9. Pendlebury's lease for its store premises calls for a $2,500 monthly rental payment plus 3% of all sales. The payment is due one week after month end.
10. Pendlebury is legally required to restore the area surrounding one of its store parking lots, at an estimated cost of
$100,000, when the store is closed in two years. Pendlebury estimates that the fair value of this obligation at December 31 is $86,000.
11. The corporate tax return indicated taxable income of $205,000. Pendlebury's income tax rate is 20%.
(a) Prepare all the journal entries that are necessary to record the above transactions when they occurred and any adjust ing journal entries relative to the transactions that would be required to present fair financial statements at December 31. Date each entry.
(b) Identify the current liabilities that will be reported on the December 31 balance sheet, and indicate the amount of each one.
(c) Prepare the journal entries for transactions 7 and 8 above if the 8% sales tax is applied on the purchase or sale amount plus the GST.
(d) Why is the liabilities section of the balance sheet of primary significance to bankers? (e) How are current liabilities related by definition to current assets?