Joan’s Golf Shop Ltd. had the following transactions involving current liabiliti
ID: 2446217 • Letter: J
Question
Joan’s Golf Shop Ltd. had the following transactions involving current liabilities in its first year of operations: 1. The company ordered golf equipment from suppliers for $571,100, on credit. It paid $531,400 to suppliers during the year. 2. The shop has seven employees, who earn gross wages of $243,000 for the year. From this, the company deducted 22% for income taxes, $10,890 in CPP premiums, and $4,350 in EI premiums before distributing the cheques to the staff. As an employer, Joan was also required to match the employees’ CPP premiums and pay $6,090 in EI premiums. Eleven-twelfths of the amounts due to the government (all except the last month) were paid before the end of the year. 3. The company gives customers a one-year warranty on golf clubs. Management estimated that warranty costs would total 2% of sales. Sales of golf clubs for the year were $990,000. During the year, the company spent $11,800 to replace faulty golf clubs under the warranty. 4. Some customers order very expensive, custom-made golf clubs. In these cases, the company requires them to pay a deposit of 50% of the selling price when the order is placed. During the year, deposits totalling $18,700 were received for custom orders. None of these orders have been delivered yet. a. Prepare journal entries to record the transactions. b. Prepare the current liabilities section of the statement of financial position as it would appear at the end of the year.
Explanation / Answer
Date
Title of Account
Debit
Credit
Golf equipment
571000
Suppliers
571000
Suppliers
531400
Cash
531400
Salary
243000
Bank
174300
Income Tax Payable
53460
CPP Premium
10890
EI Premiums
4350
EI premiums
6090
Cash
6090
Cash
990000
Sales
990000
Warranty
11800
Cash
11800
Cash
18700
Customer Advances
18700
Balance Sheet (Only Current Liability Portion)
Current Liabilities
Suppliers
39600
Income Tax Payable
53460
CPP Premium
10890
Warranty
8000
Customers Advances
18700
130650
Date
Title of Account
Debit
Credit
Golf equipment
571000
Suppliers
571000
Suppliers
531400
Cash
531400
Salary
243000
Bank
174300
Income Tax Payable
53460
CPP Premium
10890
EI Premiums
4350
EI premiums
6090
Cash
6090
Cash
990000
Sales
990000
Warranty
11800
Cash
11800
Cash
18700
Customer Advances
18700
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