CURRENT LIABILITIES Sierra Limited has a December 31 year-end. On December 1st S
ID: 2415896 • Letter: C
Question
CURRENT LIABILITIES
Sierra Limited has a December 31 year-end. On December 1st Sierra had the following current liabilities listed on its book
Bank overdraft $23,250
Accounts payable 112,500
CPP and EI payable $8,620
Unearned revenues 12,000
During December Sierra incurred the following transactions:
Dec. 1 Negotiated a $50,000 line of credit with their bank to replace the bank overdraft. Interest will be charged at 8%, based on the average balance outstanding during the month, and paid on the last day of the month.
Dec. 5 Sold goods worth $30,000 on which they had previously received a $12,000 deposit. The balance was due in 30 days.
Dec.12 Bought $20,000 of inventory on credit, terms of 30 days.
Dec.15 Paid amounts due the Government of Canada for the payroll amounts outstanding from November 30.
Dec. 20 Paid $87,000 owing to a supplier. Dec. 21 Received $5,000 from a client for work that will be performed in January.
Dec. 21 Sold $56,000 of goods half for cash, half on credit.
Dec 22. Made a $10,000 payment on the line of credit.
Dec. 30 Paid the monthly payroll amounts to employees. The gross payroll was $16,200. Amounts withheld from the employees’ cheques were as follows: • Canada pension plan premiums (CPP) $1,200 • Employment insurance premiums (EI) $1,850 • Income tax $2,800 At this time, the company also recorded their liability for amounts due to the government for CPP and EI. Assume the employer must match the employees’ contribution for both EI and CPP.
Dec. 31 Received notification that a client has sued the company for failure to clear the snow away from the front of the business premises. Sierra’s lawyer says that it is likely that the company will be required to pay but she is unable to reasonably determine the amount of the loss but thinks it will not be significant.
Required:
a. Prepare all the journal entries required as a result of the above transactions.
b. Prepare the current liability section of the statement of financial position at December 31st.
Explanation / Answer
a. Journal Entries for Transactions of Sierra Limited (All amounts in $) Date Particulars Debit $ Credit $ 01-Dec Bank Overdraft A/c DR 50000 To 8% Short Term Loan from Bank A/c 50000 05-Dec Accounts Receivable A/c DR 18000 Unearned Revenue A/c DR 12000 To Sales A/c 30000 12-Dec Purchases A/c DR 20000 To Accounts Payable A/c 20000 15-Dec CPP and EI Payable A/c DR 8620 To Cash/Bank A/c 8620 20-Dec Accounts Payable A/c DR 87000 To Cash/Bank A/c 87000 21-Dec Cash/Bank A/c DR 5000 To Unearned Revenue A/c 5000 21-Dec Cash/Bank A/c DR 28000 Accounts Receivable A/c DR 28000 To Sales A/c 56000 22-Dec 8% Short Term Loan from Bank A/c DR 10000 To Cash/Bank A/c 10000 30-Dec Payroll Costs A/c DR 16200 To Cash/Bank A/c 10350 To CPP Payable A/c 1200 To EI Payable A/c 1850 To Income Tax Payable A/c 2800 31-Dec No journal entry, since the amount of liability has not been determined b. Current Liabilities Section of Sierra Limited as on December 31 (All Amounts in $) 8% Short Term Loan from Bank 40000 Accounts Payable 45500 CPP and EI Payable 3050 Income Tax Payable 2800 Unearned Revenues 5000