Below are extracts of the current liabilities (partial) and equity sections of the statement of financial position as at 31 December 2019, with a related note, for Zed Company (“Zed”): Current Liabilities Current portion of long-term debt $1,600,000 Short-term debt 2,345,000 Accounts payable 20,123,000 Accrued warranty 16,840,000 Accrued and deferred income taxes 15,206,000 Equity Share capital – ordinary, $20 par $3,000,000 Share premium – ordinary 1,050,000 Retained earnings 750,000 Note 1 (partial): Summary of Significant Accounting Policies and Related Data Accrued Warranty: Zed provides an accrual for future warranty costs based upon the ratio of prior years’ sales to actual warranty costs. 

Required: 

(a) Prepare journal entries to record the following transactions by the cost method. 

(i) On 5 January 2020, Zed bought 5,000 ordinary shares at $29 a share. 

(ii) On 10 January 2020, Zed sold 2,500 treasury shares at $30 a share. (iii) On 18 January 2020, Zed sold 1,000 treasury shares at $26 a share.

(b) With regards to Zed’s accrued warranty 

(i) Identify, with a brief explanation, the type of warranty that Zed has provided to customers. 

(ii) Describe the accounting treatment for this type of warranty and comment on whether Zed’s treatment is appropriate. 

(iii) Under what circumstance would it be appropriate for Zed to recognize unearned revenue on warranty contracts? 

(c) The IASB defines various elements of financial statements in the Conceptual Framework for developing standards. 

Answer the following questions based on the Conceptual Framework. 

(i) Define “equity”. 

(ii) What financial statement element other than equity is typically affected by owner investments? 

(iii) What financial statement element other than equity is typically affected by distributions to owners? 

(iv) Provide an example of changes within equity that do not change the total amount of equity.

Answer rating: 100% (QA)

a i Particulars Debit Credit Ordinary shares 145000 To cash 145000 to record purchase of ordinary shares Amount No of shares X share value 5000 x 29 1... View the full answer