The following selected account balances are from LightHouse Distributors’ adjusted trial balance at September 30, 2021:
Accounts payable ............................................ $ 90,000
Accounts receivable ......................................... 182,000
Bank indebtedness ............................................ 62,500
CPP payable .......................................................... 7,500
EI payable ............................................................. 3,750
HST payable ....................................................... 15,000
Income tax payable ........................................... 35,000
Interest payable ................................................ 10,000
Merchandise inventory .................................. 275,000

Mortgage payable ........................................... 150,000
Notes payable ................................................. 100,000
Prepaid expenses ............................................. 12,500
Property taxes payable .................................... 10,000
Unearned revenue ........................................... 30,000
Vacation pay payable ....................................... 13,500
Warranty liability ................................................ 22,500
Workers’ compensation payable ....................... 1,250

Additional information:

1. On September 30, 2021, the unused operating line of credit is $75,000.

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, $10,000 is due each year.

4. Of the note payable, $1,000 is due at the end of each month.

Instructions

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

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

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

The accountant for LightHouse argues that since property taxes are unavoidable, a company should record the full year’s worth of property taxes as an expense when it is paid. Is the accountant correct? Explain.