Answer to Question #163884 in Accounting for yoyo

Question

The following selected transactions and events of Orane Ltd. Were completed during the accounting year just ended, 31 December 20X5. Interest rates reflect market rates unless indicated.

a. On 1 June, the company borrowed $54,000 in cash from the bank on a demand basis. The interest rate was 5% to be paid on the anniversary date of the loan.

b. Merchandise was purchased on account; a $20,000, one year 6% interest-bearing note, dated 1 April 20X5, was given to the supplier. Interest is paid when the amount is due on 1 April 20X6.

c. Merchandise was purchased on account; a two year, $18,000, 2% note dated 1 February 20X5 was given to the supplier. Interest is due annually on 1 February. The going interest rate for this term and risk was 8%. Use the gross method to record the note payable.

d. A supplier delivered goods on account costing US$22,000. The exchange rate was US$1 = Cnd$0.96 at that time.

e. Orane has been sued by a customer for $450,000. The legal team confidently believes that there is an 85% chance that Orane will successfully defend itself.

f. New legislative requirements came into force at the beginning of this year regarding environmental remediation. Orane believes it will have to pay $90,000 in nine years time when the company vacates leased premises. The going interest rate for this term and risk was 8%.

g. Payroll records showed that the following amounts are unpaid: Gross wages $130,000; Income tax $33,000; EI $6,100; CPP $5,500; Union Dues $3,500.

h. The employer portion of EI and CPP are recorded.

i. Remittances were income tax, $31,350; EI $10,250; CPP $9,720; union dues $1,450.

j. Cash dividends declared but not yet paid were $23,500.

k. Accrue appropriate interest at 31 December, and adjust the foreign-denominated payable to the year end rate, US$1=Cnd$0.94.

Requirements:-

Give the entry or entries for each of the above transactions and events, if needed. (if not needed, explain why)

Prepare a list (title and amount) of the liabilities of Orane Ltd. at 31 December 20X5

Answer 1

a. 01.06.2015: debit current account credit short-term loans - 54 000

b. 01.04.2015: debit goods credit payments with the supplier - 20 000

c. 01.02.2015: debit goods credit payments with the supplier - 18 000

d. debit goods credit payments with the supplier - 22 000

e. debit settlements with customers credit settlements on claims - 450 000

f. debit main production, general economic expenses, commercial expenses credit payments for environmental pollution - 90 000

g. transactions are not credited, this is a balance

h. debit main production, general economic expenses, commercial expenses credit EI - 4 150

debit main production, general economic expenses, commercial expenses credit CPP - 4 220

i. debit income tax checking account - 31 350

debit EI checking account - 10 250

debit CPP checking account - 9 720

debit Union Dues checking account - 1 450

j. debit retained earnings credit income payment calculations - 23 500

k. the interest is all annual, so the accrual of interest is final at the end of the terms