On January 1, 2014, Zaur Company's general ledger had these liability accounts:
Accounts payable ............................................. $63,700
Redemption rewards liability ................................ 2,150
CPP payable ................................................... 2,152
EI payable ...................................................... 1,019
HST payable ................................................... 11,390
Income tax payable ........................................... 4,563
Unearned revenue ............................................. 16,000
Vacation pay payable ......................................... 9,120
Warranty liability ............................................. 5,750
In January, the following selected transactions occurred:
Jan. 5 Sold merchandise for $15,800 cash, plus 13% HST. Zaur uses a periodic inventory system.
12 Provided services for customers who had previously made advance payments of $7,000.
14 Paid the Receiver General (federal government) sales taxes collected in December 2013.
15 Paid the Receiver General for amounts owing from the December payroll for CPP, EI, and income tax.
16 Borrowed $18,000 from Second National Bank on a three-month, 6% note. Interest is payable monthly on the 15th day of the month.
17 Paid $35,000 to creditors on account.
20 Sold 500 units of a new product on account for $60 per unit, plus 13% HST. This new product has a two-year warranty. It is expected that 6% of the units sold will be returned for repair at an average cost of $10 per unit.
30 Customers redeemed $1,750 of loyalty rewards in exchange for services. Assume that HST of 13% is included in this amount.
31 Issued 50,000 loyalty points worth $1 each. Based on past experience, 10% of these points are expected to be redeemed.
31 Determined that the company had used $875 of parts inventory in January to honour warranty contracts.
31 Recorded and paid the monthly payroll. Gross salaries were $25,350. Amounts withheld include CPP of $1,183, EI of $464, and income tax of $4,563.
Instructions
(a) Record the transactions.
(b) Record adjusting entries for the following:
1. Interest on the note payable for half a month
2. The estimated warranty liability
3. Employee benefits, which include CPP, EI, and vacation pay that is accrued at a rate of 4%
(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.