Reference no: EM132013305

Current Liabilities

Winslow Inc., a lawn care and pest control service that also sells lawn equipment, had the following events occur throughout the year 2014.

A. Winslow owned two warehouses next to its corporate office. Given that they were only using one of the warehouses for operations, they rented the other one to Dagwood Corp for $54,000 a year. The rental period is for ten years and Dagwood must prepay a year's worth of rent every April 1.

B. On October 12, 2014, Winslow was sued for $150,000 by a former employee who claimed wrongful termination. Winslow's lawyer indicated that a loss was possible and that a judge would most likely deem the amount fair, should the lawsuit go to court.

C. Winslow had $200,000 of notes payable due on February 2, 2015. On January 16, 2015, they issued $150,000 of common stock and used the proceeds to aid in the repayment of the loan.

D. Winslow offers a one-year warranty on its lawn equipment. Based on past experience, Winslow estimates its warranty expense to be 2% of sales. Sales of lawn equipment during 2014 were $1,500,000. The company paid $12,000 in warranty costs for the year. (Assume the accrual method is used).

E. On November, 15, 2014, Winslow guaranteed a bank loan of $100,000 for its president's personal use.

F. On December 3, 2014, Winslow Inc. initiated a lawsuit in the amount of $400,000 against a former employee for violating a non-compete clause. It is probable that Winslow will win the lawsuit.

G. On December 20, 2014, Winslow declared $40,000 in cash dividends to be paid on January 30th. They also declared 80,000 in stock dividends to employees as bonus compensation. The stock will be distributed on January 16th.

H. On November 1, Winslow borrowed $50,000 by signing a 12-month note bearing interest at 8%. Interest is payable in full at maturity on October 31, 2015.

I. In May of 2014, Winslow became involved in a tax dispute with the IRS. At December 2014, the tax attorney for Winslow indicated that an unfavorable outcome to the dispute was probable. The additional taxes were estimated to be $450,000, but could be as high as $600,000. On March 15, 2015, Winslow accepted an IRS settlement offer of $500,000.

J. During 2014, Winslow Inc. sold 35,000 packages of their new advanced dual- purpose pest control and lawn fertilizing granules. As part of a marketing campaign, each package of granules contained one coupon, which entitled the customer to a $5.00 cash rebate. Winslow estimates that 60 percent of the coupons will be redeemed, even though only 14,000 coupons had been processed during 2014.

K. Winslow collects 6 percent sales tax from customers for all sales and remits each month's collections to the state on the 20th of the month following the sale. December sales totaled $473,290, including sales tax for the month.

L. On June 1, Winslow purchased a new production facility. On that date, Winslow obtained a 10-year, $600,000, 8% mortgage from Atlas Bank to help finance the purchase. (Assume simple interest and, for the sake of simplicity, that payment is due on May 31 of each year).

M. Winslow has 80 employees who each work eight hour days and are paid hourly. On January 1, 2011, the company began a program of granting its employees 10 day's paid vacation each year and one sick day per month. An employee who leaves the company is paid for unused vacation pay; however, sick time does not vest. No employee retired or left in years 2011 or 2014. Vacation days earned in 2011 may first be taken on January 1, 2014.

Below is a breakdown of the days earned/used by the employees:

Vacation Days Vacation Days Sick Days

Hourly Earned by Used by Used by

Year Wages each employee each employee each employee

2011 $12.50 10 0 7

2014 $14.00 10 8 9

Winslow has chosen to accrue the liability for compensated absences at the current rates of pay that are in effect when the compensated time is earned.

Instructions:

1. Prepare the current liabilities section of the Balance Sheet for Winslow Inc., as of December 31, 2014. Winslow published its financials on March 4, 2015.

2. If an amount from the list above is not included in the current liabilities section, indicate why it is not included in current liabilities and, if applicable, how it should be accounted?