Identifying Current vs
. Non-Current Liabilities: A Practical
School
Northern Alberta Institute of Technology**We aren't endorsed by this school
Course
CMIS 1101
Subject
Accounting
Date
Dec 10, 2024
Pages
14
Uploaded by GrandNeutron15812
AP9-1A(Current liabilities)RequiredIdentify each of the liabilities as current or non-current. (Note that some liabilities may be classified partially as cuExplanationa$200,000 Goods will have to be delivered in less than 12 month (March, 2021)b$6,000 Remittance will have to be done within 12 months (January 15, 2021)c$100,000 Loan will be paid in 2024 which is more than 12 months from December 31,d$25,000 Warranty work or obligation is for 1 yeare$50,000 Accounts Payable will be paid in 3 months after December 31, 2020f$5,000 $45,000 We will pay $5,000 in 12 months and $45,000 will be paid in future years.g$5,000 Borrowing on line of credit is for short term cash shortages and will be paid Laura, the accountant for Ocsoc Ltd., is currently preparing the December 31, 2020, statement of financial positioa. In the month of December, Ocsoc accepted $200,000 in deposits for goods to be delivered to customers by Mab. During December, Ocsoc withheld $6,000 from employee wages for CPP, EI, and taxes. The company is requiredc. In 2019, Ocsoc obtained a $100,000 five-year loan repayable at maturity.d. The company provides a one-year assurance-type warranty on its products and in December 2020 estimated a e. At the end of December, Ocsoc owed suppliers $50,000 for goods purchased during the last quarter of the yearf. Ocsoc has a $50,000 loan, of which $5,000 is scheduled to be repaid in 2021.g. During 2020, Ocsoc exceeded its cash balance by $5,000 and the bank automatically activated a line of credit toCurrent LiabilityLong-term Liability
urrent and partially as non-current.) Provide your reasoning for each item., 2020back within 12 monthson, and she asked you to help her classify the following liabilities:arch 2021.d to remit the amount to the government on January 15, 2021.warranty expense of $25,000.r, which will be settled in the first quarter of 2021.o cover the shortage.
AP9-2A (Reclassification of current portion of long-term debt and impact on current ratio)Current assets$125,000 Current liabilities50,000Non-current assets175,000 Loan payable100,000Common shares75,000Retained earnings75,000Total assets$300,000 Total liabilities and shareholders' equity$300,000Requireda. Does Christina Fashions comply with the bank's current ratio requirement prior to recording the aCurrent ratio = current assets /current liabilities=125,000/$50,0002.5Yes, Christina Fashions complies with the bank's current ratio requirement of 2.0 $100,000 x 6% 8/12 months=$ 4,000 Dr.Interest expenseCr.Interest payableDr.Long-term Loan PayableCr.Current Portion of Loan Payabled. Does Christina Fashions breach the bank's current ratio requirement after preparing the journal enCurrent liabilityPer "unadjusted" (above) financial statementJournal entry (b) aboveJournal entry (c) aboveCurrent liability restated Current assets Current ratioNo, Christina Fashions does not complies with the bank's current ratiOn May 1, 2020, Christina Fashions borrowed $100,000 at a bank by signing a four-year, 6% loan. Th30. The loan agreement requires the company to maintain a minimum current ratio of 2.0. The Decdebt, follows:b. Prepare journal entries to record the interest payable on December 31, 2020.c. Prepare the journal entries to reclassify the portion of the long-term loan as current.
79,00075000accrued interest and reclassification of the current portion of the long-term loan?$ 4,000 $ 4,000 $ 25,000 $ 25,000 ntries above?$ 50,000 $ 4,000 $ 25,000 $ 79,000 $ 125,000 1.6tio requirement of 2.0 he terms of the loan require equal principal payments of $25,000 and accrued interest at 6% due annually ocember 31, 2020, year-end statement of financial position, immediately prior to the reclassification of long
on April g-term
Do IT! 9-4 Calculation of Ratios for LuluLemon (Excel template)Selected financial information from LuluLemon’s 2019 and 2018 annual reports are as follows:201920182017Accounts payable95,533 24,646 24,846 Accrued inventory liabilities16,241 13,027 8,601 Cost of goods sold1,472,032 1,250,391 1,144,775 Inventory, ending404,842 329,562 298,432 a. Calculate the current period credit purchases:20192018Cost of goods sold1,472,032 1,250,391 less: beginning inventory(329,562) (298,432)Add: ending inventory404,842 329,562 Total current period credit purchases1,547,312 1,281,521 74,724 35,560 b. Calculate the accounts payable turnover and average payment period20192018Accounts payable turnover21 36 Average payment period17.63 10.13 c. Discuss the resultsAverage accrued inventory liabilities and accounts payable (note 1)Note 1: Since LuluLemon splits out accounts payable from accrued inventory liabilities on the income statement, it is assumed that both relate to purchases and are include in the calculation.LuluLemon has a high turnover. The company pays its accounta payable and accrued inventory liabilities 21 times a year in 2019. This is a slight decrease from 2018 but still high. On average, it takes the company 10-18 days to pay its suppliers.
Friday, May 01, 2020Issuance$100,000,000a) Determine the cash received on issuance and the yield for the 10-year bonds issueSince the bonds are issued at par, the amount received is equal to the face value of $b) Prepare the journal entry for the issuance of the bond.DateAccoun1-May Cash Bond Payable Issued bonds at par value Prepare the journal entries required at October 31 and December 31, 2020, and the eDateAccoun31-Oct Interest Expense Cash Payment of the coupon or stated interest31-Dec Interest Expense Interest Payable Interest owed to December 31 30-Apr Interest Payable Interest Expense Cash Payment of coupon rate allocated betwe$100,000,000 x 4/12 x 6% = 2,000,000 Morneau Automation Ltd. issued 6%, 10-year bonds with a face value of $100 million31, 2020. Morneau's year end is December 31.Interest payment ($100M x 6% x 6/12)Interest owing ($100M x 6% x 2/12)
Saturday, October 31, 2020Thursday, December 31, 2020$3,000,000$1,000,000ed by Morneau Automation.$100,000,000nt DebitCredit$ 100,000,000 $ 100,000,000 entry for the interest payment on April 30, 2021.nt DebitCredit$ 3,000,000 $ 3,000,000 t according to the bond agreement $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 2,000,000 $ 3,000,000 een interest payable and expense n at par on May 1, 2020. The bonds pay interest on October 31 and April 30 each year. The first interest
Friday, April 30, 2021$3,000,000payment was made on October
Friday, May 01, 2020Issuance$100,000,000a) Determine the cash received on issuance and the yield for the 10-year bonds issued by GeSince the bonds are issued at par, the amount received is equal to the face value of $100,000b) Prepare the journal entry for the issuance of the bond.DateAccount 1-May Cash Bond Payable Issued bonds at par value Prepare the journal entries required at October 31 and December 31, 2020, and the entry foDateAccount 31-Oct Interest Expense Cash Payment of the coupon or stated interest accord31-Dec Interest Expense Interest Payable Interest owed to December 31 30-Apr Interest Payable Interest Expense Cash Payment of coupon rate allocated between interGear Ltd. issued 5%, 10-year bonds with a face value of $100 million at par on May 1, 2020. TGear's year end is December 31.Interest payment ($100M x 5% x 6/12)Interest owing ($100M x 5% x 2/12)
Saturday, October 31, 2020Thursday, December 31, 2020$2,500,000$833,333ear.0,000DebitCredit$ 100,000,000 $ 100,000,000 or the interest payment on April 30, 2021.DebitCredit$ 2,500,000 $ 2,500,000 ding to the bond agreement $ 833,333 $ 833,333 $ 833,333 $ 1,666,667 $ 2,500,000 rest payable and expense The bonds pay interest on October 31 and April 30 each year. The first interest payment was mad
Friday, April 30, 2021$2,500,000de on October 31, 2020.
RequiredFill in the following chart, prior to answering the question requirements:in millionsCash 100 100 Interest bearing debt650 1,125 Shareholder's equity900 900 Debt to Equity0.61 1.14 0.61 Do IT 10-3 (AP10-13B Debt to equity and net debt as percentage of capitalization)Ferguson Theatres Inc. operates specialty film format theatres that display images of greater size and higher quality resolution. Ferguson is considering expanding its theatres in China and needs to raise $475 million in additional debt. However, the company is concerned about remaining compliant with its existing debt to equity ratio covenant of 1.10:1 and the net debt as a percentage of capitalization ratio of 50%. For the fiscal year ended December 31, 2020, an extract of the statement of financial position for Ferguson Theatres showed the following information: total interest-bearing debt of $650 million, a cash balance of $100 million, and shareholders' equity of $900 million.Determine whether Ferguson Theatres Inc. could borrow $475 million and remain in compliance with the bank covenants.Before AcquisitionAfter AcquisitionBefore AcquisitionAfter AcquisitionCan Ferguson Theaters Inc. borrow $475 million and remain in compliance with the bank covenants?Ferguson would exceed the 1.10:1 debt to equity ratio set by the lender.Ferguson would also exceed the 50% net debt ratio as a percentage of total capitalization set by the lender. Ferguson Theatres cannot borrow and remain in compliance with its existing debt covenants.
RequiredFill in the following chart, prior to answering the question requirements:in millionsCash 75 75 Interest bearing debt575 655 Shareholder's equity450 450 Debt to Equity1.11 1.29 Do IT 10-2 (AP10-13A Debt to equity and net debt as a percentage of capitalization)Fessenden Corporation has accumulated a significant amount of debt as a result of debt-financed acquisitions of other companies. It is currently considering acquiring one of its competitors, Sonar Corporation. Fessenden's existing debt covenants stipulate that it cannot go beyond a debt to equity ratio of 1.25:1 and a net debt as a percentage of capitalization ratio of 0.9:1. The acquisition of Sonar will cost $80 million. Fessenden's current level of equity is $450 million and its current level of interest-bearing debt is $575 million. Fessenden has a cash balance of $75 million. It will finance the acquisition with a 10-year bond of $80 million that carries a 5% interest rate sold at par.a. Determine Fessenden's debt to equity ratio and net debt as a percentage of capitalization ratio prior to the proposed acquisition.b. Determine whether Fessenden could acquire Sonar Corporation with the bond issue and still remain in compliance with the existing debt covenants.Before AcquisitionAfter AcquisitionBefore AcquisitionAfter AcquisitionCan Fessenden acquire Sonar Corporation with the bond issue and still remain in compliance with the existing debt covenants.Fessenden would exceed the 1.25:1 ratio set by the lender if it were to issue bonds to finance the aquisition. Fessenden cannot acquire Sonar Corporation with a debt issue and remain in compliance with its existing debt covenants.