Question

Assume that the Florence PlasticsFlorence Plastics Inc., a manufacturer of plastic pipe for the construction industry and located in Red​ Deer, Alberta, faced the following liability situations at June​ 30, 2017​, the end of the​ company's fiscal year. Show how Florence PlasticsFlorence Plastics Inc. would report these liabilities on its balance sheet at June​ 30, 2017.

a. Long-term debt totals $20 million and is payable in annual instalments of $2 million each. The interest rate on the debt is 6%, and the interest is paid each December 31. b. Salary expense for the last payroll period of the year was $95,000. Of this amount, employees' income tax of $24,000 was withheld, and other withholdings and employee benefits were $8,300. These payroll amounts will be paid in early July. C. Since the last reporting period, GST of $320,000 had been collected, and ITCs of $88,000 had been earned. d. On fiscal-year 2017 sales of $39 million, management estimates warranty expense of 5%. One year ago, at June 30, 2016, Estimated Warranty Liability stood at $120,000. Warranty payments were $375,000 during the year ended June 30, 2017

a.​ Long-term debt totals $20 million and is payable in annual instalments of $2 million each. The interest rate on the debt is 6​%, and the interest is paid each December 31. ​(Enter all amounts in whole dollars. If a box is not used in the​ table, leave the box​ empty; do not select a label or enter a​ zero.)

b. Salary expense for the last payroll period of the year was $95,000. Of this​ amount, employees' income tax of $24,000 was​ withheld, and other withholdings and employee benefits were $8,300. These payroll amounts will be paid in early July. ​(Enter all amounts in whole dollars. If a box is not used in the​ table, leave the box​ empty; do not select a label or enter a​ zero.)

c. Since the last reporting​ period, GST of $320,000 had been​ collected, and ITCs of $88,000 had been earned. ​(Enter all amounts in whole dollars. If a box is not used in the​ table, leave the box​ empty; do not select a label or enter a​ zero.)

d. On​ fiscal-year 2017 sales of $39 ​million, management estimates warranty expense of 5​%. One year​ ago, at June​ 30, 2016​, Estimated Warranty Liability stood at $120,000.

Warranty payments were $375,000 during the year ended June​ 30, 2017. ​(Enter all amounts in whole dollars. If a box is not used in the​ table, leave the box​ empty; do not select a label or enter a​ zero.)

Answer 1

A. Long Term debt of $ 20 million with 6% interest due annually:

Current Liabilities:

Current portion of Long Term Debt = $ 2,000,000

Interest Payable = $ 120,000

Long Term Liabilities:

Long Term Debt = $ 18,000,000

Long Term Interest payable = $ 1,080,000

B. Salary Expense of $ 95,000 due to pay in July 2018:

Current Liabilities:

Salary Payable   = $ 62,700

Employee withheld income tax payable =  $ 24,000

Other Employee with holdings & Benefits payable = $ 8,300

Long Term Liabilities:

Not Applicable as all payments due in July 2018 (i.e.) less than 12 months from closing date.

C. GST 320,000 & ITC $ 88,000 :

Current Liabilities:

GST Payable = $ 408,000

Long Term Liabilities:

Not Applicable as all payments due to remit in following month (i.e.) less than 12 months from closing date.

D. Warranty Expense of 5% on $ 39 million:

Thus amount to report under Estimated Warranty Payable account as of June 30, 2017 =

Opening balance + Current year provision - current year payments

= 120,000 + (39000000*5%) - 375000

= $ 1,695,000

Current Liabilities:

Not Applicable as Warranty is a Contingent liability (i.e.) liability may or may not arise in future. Warranty is an assurance given to customers to spend for repair or replace any item sold, if fails within the warranty period. Hence liability is not confirmed liability and hence considered as Contingent Liability.

Long Term Liabilities:

Not Applicable as Warranty is a Contingent liability (i.e.) liability may or may not arise in future. Warranty is an assurance given to customers to spend for repair or replace any item sold, if fails within the warranty period. Hence liability is not confirmed liability and hence considered as Contingent Liability.