Question

Requirement: Classify Each liability as a current or long term and report the liability and its amount that would appear on the prestige golf equipment balance sheet at October 31, 2017.

a. Sales of $5,250,000 are subject to estimated warranty cost of 3%. The estimated warranty payable at the beginning of the year was $38,000, and warranty payments for the year totalled $52,000. b. On October 1, 2017, Prestige signed a $150,000 note that requires annual payments of $30,000 plus 5% interest on the unpaid balance each October 1. C. Golf Town, a chain of golf stores, ordered $150,000 of golf equipment. With its order, Golf Town sent a cheque for $150,000, and Prestige shipped $93,000 of the goods. Prestige will ship the remainder of the goods on November 3, 2018. d. The October payroll of $100,000 is subject to employee-withheld income tax, Canada Pension Plan and Employment Insurance, and the company's share of Canada Pension Plan and Employment Insurance totalling $25,300 and benefits of $9,900. On October 31, Prestige pays employees their take-home pay and accrues all tax amounts.

Answer 1

Liabilities that are likely to be payable within one year from reporting period or within normal operating cycle are classified as current liabilities

All liabilities other than current are classified as non current liabilities.

a)Warranty expense for Year = 5250000 *3%= 157500

Estimated warranty liability at year end =Beginning +Warranty expense -payments

                         = 38000 + 157500 - 52000

                        = 143500

BALANCE SHEET (EXTRACT)
LIABILITIES
Current liabilities
Warranty payable	143500

b)

Interest accrued for one month[1Oct -31Oct ] = Principal amount outstanding *i*n/12

                     = 150000*.05*1/12

                      = 625

BALANCE SHEET (EXTRACT)
LIABILITIES
Current liabilities
Note payable (current portion )	30000
Interest payable	625
Long term liabilities
Note payable (non-current) [150000-30000]	120000

c)

Since the payment for merchandise purchase is partially paid in advance and partially on receipt of goods ,there is no liability accrued on part of Prestige golf equipment co.

d)

BALANCE SHEET (EXTRACT)
LIABILITIES
Current liabilities
Federal Income taxes,Canada pension plan and Employment insurance payable (Employee portion)	25300
Canada pension plan and Employment insurance payable (Employer portion)	9900