On January 1, 2014, Shumway Soft ware Company's general ledger contained these liability accounts:
Accounts payable .............................................. $37,900
Redemption rewards liability ................................. 4,500
CPP payable .................................................... 1,580
EI payable ....................................................... 730
HST payable .................................................... 9,230
Income tax payable ............................................ 3,367
Unearned revenue ............................................. 15,000
Vacation pay payable ......................................... 9,035
In January, the following selected transactions occurred:
Jan. 2 Issued a $50,000, four-month, 7% note. Interest is payable at maturity.
5 Sold merchandise for $8,800 cash, plus 13% HST. The cost of this sale was $4,600. Shumway Soft ware uses a perpetual inventory system.
12 Provided services for customers who had paid $8,500 cash in advance. (Hint: Part of this is HST and the remaining amount is Service Revenue.) 14 Paid the Receiver General (federal government) for sales taxes collected in December 2013.
15 Paid the Receiver General for amounts owing from the December payroll for CPP, EI, and income tax.
17 Paid $15,000 to creditors on account.
20 Sold 500 units of a new product on account for $55 per unit, plus 13% HST. This new product has a one-year warranty. It is estimated that 9% of the units sold will be returned for repair at an average cost of $10 per unit. The cost of this sale was $25 per unit.
29 During the month, provided $2,300 of services for customers who redeemed their customer loyalty rewards. Assume that HST of 13% is included in $2,300.
31 Issued 30,000 loyalty rewards points worth $1 each. Based on past experience, 20% of these points are expected to be redeemed.
31 Recorded and paid the monthly payroll. Gross salaries were $17,500. Amounts withheld included CPP of $809, EI of $320, and income tax of $3,544.
Instructions
(a) Record the transactions.
(b) Record adjusting entries for the following:
1. Interest on the note payable
2. The estimated warranty liability
3. Employee benefits for CPP, EI, and vacation pay (accrued at a rate of 4%)
4. Estimated property taxes of $8,940 for the 2014 calendar year
(c) Prepare the current liabilities section of the balance sheet at January 31.
TAKING IT FURTHER
Explain how and when the Vacation Pay Payable account balance is paid