The following selected account balances are from Creative Carpentry’s adjusted trial balance at March 31, 2024: 

Accounts payable ........................................................... $ 60,000 

Accounts receivable ..........................................................184,000 

Accumulated depreciation ...............................................115,000 

Bank overdraft ..................................................................... 55,200 

CPP payable .......................................................................... 2,300 

EI payable ................................................................................1,750 

HST payable ...........................................................................12,250

Income tax payable ............................................................... 25,000 

Interest payable .......................................................................8,000 

Merchandise inventory .......................................................120,600 

Mortgage payable ................................................................200,000 

Notes payable .........................................................................30,000 

Prepaid expenses ......................................................................500 

Unearned revenue ..................................................................9,385 

Vacation pay payable.............................................................. 1,200 

Warranty liability .....................................................................12,500  

Additional information: 

1. On March 31, 2024, the unused operating line of credit is $25,000. 

2. Warranties and gift cards are expected to be redeemed within one year. Unearned revenues relate to gift cards sold but not yet redeemed. 

3. Of the mortgage, $50,000 is due each year. 

4. Of the note payable, $5,000 is due at the end of each month. 

Instructions 

a. Prepare the current liabilities section of the balance sheet. 

b. Calculate Creative’s current ratio and acid-test ratio. 

c. Explain why the company did not report any cash as part of its current assets.

Explain to Peter, the owner of Creative Carpentry, why unearned gift card revenue is a current liability and how the liability will be settled.