Reference no: EM132480003
Question a) Record estimated liability for cash rebate program.
- Metropolis Books sold 50,000 copies of a best-selling novel in July for $8 each. Included in each book was a $2 mail-in rebate toward a future book purchase if the customer sends in proof of purchase with a completed rebate form. Metropolis estimates that 10% of the purchasers will claim the rebate. (a) Calculate the sales revenue and the unearned revenue related to the loyalty program that Metropolis earned in July on this book. (b) Prepare the journal entry to record the sale and the unearned revenue Metropolis Books should record.
Question b) Record gift cards issued and redeemed.
- Rikard's Menswear sells $4,750 of gift cards for cash in December 2017. Rikard's has a December 31 fiscal year end and uses a perpetual inventory system. In January 2018, $2,425 of the gift cards are redeemed for merchandise with a cost of $1,070. Prepare journal entries for Rikard's for December 2017 and January 2018 assuming all gift card balances will be redeemed.
Question c) Account for contingencies.
For each of the following independent situations, indicate whether it should be (1) recorded, (2) disclosed, or (3) neither recorded nor disclosed. Explain your reasoning and indicate if the accounting treatment would be the same or different under IFRS and ASPE.
(a) A customer has sued a company for $1 million. Currently the company is unable to determine if it will win or lose the lawsuit.
(b) A customer has sued a company for $1 million. The company will likely lose the lawsuit.
(c) A competitor has sued a company for $2 million. The lawyers have advised that there is a 55% chance that the company will lose the lawsuit.
Question d) Discuss contingency.
Athabasca Toil & Oil Company, a public company, is a defendant in a lawsuit for improper discharge of pollutants and waste into the Athabasca River. Athabasca's lawyers have advised that it is probable the company will lose this lawsuit and that it could settle out of court for $50,000. Should Athabasca record anything with regard to this lawsuit? Or should it disclose it in the notes to the financial statements? Explain.
Question e) Record payroll.
Bri Company's gross pay for the week ended August 22 totalled $70,000, from which $3,330 was deducted for CPP, $1,281 for EI, and $19,360 for income tax. Prepare the entry to record the employer payroll costs, assuming these will not be paid until September.
Question f) Calculate current and non-current portion of notes payable.
Diamond Dealers has two notes payable outstanding on December 31, 2017, as follows:
(a) A five-year, 5.5%, $60,000 note payable issued on August 31, 2017. Diamond Dealers is required to pay $12,000 plus interest on August 31 each year starting in 2018.
(b) A four-year, 4.5%, $96,000 note payable issued on September 30, 2017. Diamond Dealers is required to pay $2,000 plus interest at the end of each month starting on October 31, 2017. All payments are up to date.