Financial Accounting With International Financial Reporting Standards 4th Edition Weygandt Solutions Manual

Financial Accounting with International
Financial Reporting Standards 4th

Edition Weygandt Solutions Manual
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-international-financial-reporting-standards-4th-edition-weygandt-solutions-manual/
CHAPTER 10
Current Liabilities
ASSIGNMENT CLASSIFICATION TABLE
Brief
Learning Objectives Questions Exercises Do It! Exercises Problems
1. Explain how to account for 1, 2, 3, 4, 1, 2, 3, 4, 5, 6, 1 1, 2, 3, 4, 5, 1, 2, 3, 4, 5

current liabilities. 7, 8, 9 7, 8, 9, 10, 11 6, 7, 11, 12
2. Discuss how current liabilities 5, 6, 10, 11 12, 13, 14 2 8, 9, 10, 13, 1, 5, 6

are reported and analyzed. 14, 15
Copyright © 2019 WILEY Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual (For Instructor Use Only) 10-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem Difficulty Time

Number Description Level Allotted (min.)
1 Prepare current liability entries, adjusting entries, Moderate 30–40

and current liabilities section.
2 Journalize and post note transactions and show statement Moderate 30–40
of financial position presentation.
3 Record payroll expense. Moderate 20–30
4 Record payroll expense. Simple 20–30
5 Determine financial statement impact of current liabilities. Moderate 15–20
6 Compute current ratio and working capital. Simple 5–8
10-2 Copyright © 2019 WILEY Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual (For Instructor Use Only)
WEYGANDT FINANCIAL ACCOUNTING IFRS 4E
CHAPTER 10
CURRENT LIABILITIES
Number LO BT Difficulty Time (min.)

BE1 1 C Simple 3–5
BE2 1 AP Simple 2–4
BE12 2 AN Simple 1–2
DI1 1 C Simple 6–8
DI2 2 AP Simple 8–10
EX1 1 AN Moderate 8–10
EX2 1 AN Simple 6–8
EX3 1 AP Simple 4–6
EX5 1 AN Simple 6–8
EX6 1 AP Moderate 10–12
EX9 2 AN Moderate 8–10
EX12 1 AP Moderate 12–15
EX13 2 C Simple 8–10
CURRENT LIABILITIES (Continued)
Number LO BT Difficulty Time (min.)

P1 1, 2 AN Moderate 30–40
P2 1 AN Moderate 30–40
P3 1 AN Simple 30–40
P4 1 AN Moderate 30–40
P5 1, 2 AN Moderate 15–20
P6 2 AP Simple 5–10
CT1 2 C Simple 10–15
CT2 2 AN Simple 10–15
CT3 1 E Moderate 15–20
CT4 1 C Simple 10–15
CT5 1 E Simple 10–15
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Copyright © 2019 WILEY
Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

1. Explain how to account for current Q10.8 Q10.1 Q10.3 E10.4 E10.1 P10.4
liabilities. Q10.10 Q10.2 Q10.4 E10.6 E10.2 P10.5
Q10.7 BE10.2 E10.7 E10.5
Q10.9 BE10.3 E10.3 P10.1
BE10.1 BE10.4 E10.11 P10.2
DI10.1 BE10.5 E10.12 P10.3
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
BE10.6 P10.6
BE10.7
BE10.8
BE10.9
BE10.10
BE10.11
2. Discuss how current liabilities are Q10.5 Q10.11 BE10.13 E10.8 BE10.12
reported and analyzed. Q10.6 BE10.14 E10.12 E10.9
E10.13 DI10.2 E10.14 P10.1
E10.7 E10.15 P10.5
E10.10 P10.6
Expand Your Critical Thinking Financial Comparative Analysis Decision Making
Reporting Across the
Communication Organization
Ethics Case
(For Instructor Use Only)
10-5
ANSWERS TO QUESTIONS
1. Anjali is not correct. A current liability is a debt that a company expects to pay within one year or
the operating cycle, whichever is longer.
2. In the statement of financial position, Notes Payable of €40,000 and Interest Payable of €700
(€40,000 X .07 X 3/12) should be reported as current liabilities. In the income statement, Interest
Expense of €700 should be reported under other expenses and losses.
3. (a) Disagree. The company only serves as a collection agent for the taxing authority. It does not
report value-added taxes as an expense; it merely forwards the amount paid by the
customer to the government.
(b) The entry to record the proceeds is:
Cash......................................................................................... 8,400
Sales Revenue ................................................................. 8,000
Sales Taxes Payable ........................................................ 400
4. (a) The entry when the tickets are sold is:

Cash......................................................................................... 1,200,000
Unearned Ticket Revenue ................................................ 1,200,000
(b) The entry after each game is:

Unearned Ticket Revenue ........................................................ 200,000
Ticket Revenue................................................................. 200,000
5. Liquidity refers to the ability of a company to pay its maturing obligations and meet unexpected
needs for cash. Two measures of liquidity are working capital (current assets – current liabilities)
and the current ratio (current assets ÷ current liabilities).
6. A provision is a liability of uncertain timing or amount. An example of a provision is warranties

expense or product guarantees.
7. Gross pay is the amount an employee actually earns. Net pay, the amount an employee is paid,
is gross pay reduced by deductions, such as social security taxes, union dues, income taxes, etc.
Gross pay should be recorded as salaries and wages expense.
8. Both employees and employers are required to pay Social Security taxes.
9. No. When an employer withholds income taxes from employee paychecks, the employer is
merely acting as a collection agent for the taxing body. Since the employer holds employees’
funds, these withholdings are a liability for the employer until they are remitted to the
government.
10. Working capital is the excess of current assets over current liabilities while the current ratio is
calculated as current assets divided by current liabilities. They are similar in that they are both
measures of a company’s liquidity – the ability to pay maturing obligations and meet unexpected
needs for cash.
Questions Chapter 10 (Continued)
11. (1) The liability for warranties should be recorded as the estimated cost of honoring product
warranty contracts in the period in which the sale occurs.
(2) The liability for the purchase of goods on credit is recorded at the time the goods are
acquired.
(3) The liability for a profit-sharing bonus should be recorded in the period the employee earns
the bonus.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 10.1
(a) A note payable due in two years is a long-term liability, not a current
liability.
(b) $30,000 of the mortgage payable is a current maturity of long-term debt.

This amount should be reported as a current liability; the remainder
should be reported as a non-current liability.
(c) Interest payable is a current liability because it will be paid out of current
assets in the near future.
(d) Accounts payable is a current liability because it will be paid out of

current assets in the near future.
BRIEF EXERCISE 10.2
July 1 Cash ................................................................. 60,000

Notes Payable .......................................... 60,000
Dec. 31 Interest Expense ............................................. 3,000

Interest Payable
(HK$60,000 X 10% X 1/2) ..................... 3,000
BRIEF EXERCISE 10.3
Sales tax payable

(1) Sales = €15,600 = (€16,380 ÷ 1.05)
(2) Sales taxes payable = €780 = (€15,600 X 5%)
Mar. 16 Cash ................................................................. 16,380

Sales Revenue ........................................... 15,600
Sales Taxes Payable.................................. 780
BRIEF EXERCISE 10.4
(a) Accounts Receivable ......................................................31,800

Sales Revenue........................................................ 30,000
Value-Added Taxes Payable
(€30,000 X 6% = €1,800) ...................................... 1,800
(b) Cash .................................................................................20,670

Sales (€20,670 ÷ 1.06 = €19,500)............................ 19,500
Value-Added Taxes Payable.................................. 1,170
BRIEF EXERCISE 10.5
Salaries and Wages Expense ......................................... 24,000

Social Security Taxes Payable .............................. 1,920
Income Taxes Payable ........................................... 2,990
Insurance Premiums Payable................................ 250
Salaries and Wages Payable ................................. 18,840
BRIEF EXERCISE 10.6
8/1/20 Cash .................................................................................

216,000
Unearned Subscription Revenue
(12,000 X €18) ...................................................... 216,000
12/31/20 Unearned Subscription Revenue ...................................

90,000
Subscription Revenue
(€216,000 X 5/12 = €90,000) ................................ 90,000
BRIEF EXERCISE 10.7
Cash ................................................................................ 840,000

Unearned Ticket Revenue ...................................... 840,000
(To record sale of 4,000 season tickets)
Unearned Ticket Revenue.............................................. 70,000

Ticket Revenue ....................................................... 70,000
(To record basketball ticket revenue)
BRIEF EXERCISE 10.8
December 31, 2020

Salaries and Wages Expense ......................................... 350,000
February 15, 2021

Salaries and Wages Payable .......................................... 350,000
Cash ........................................................................ 350,000
BRIEF EXERCISE 10.9
Gross earnings .............................................................. €800

Less: Social security taxes payable (€800 X 6%) ....... €48
Income taxes payable ........................................ 95 143
Net pay ........................................................................... €657
BRIEF EXERCISE 10.10
a. Jan. 15 Salaries and Wages Expense .................. 800

Social Security Taxes Payable
(€800 X 6%) ........................................... 48
Income Taxes Payable ............................. 95
Salaries and Wages Payable ................... 657
b. Salaries and Wages Payable ...................................... 657

Cash ................................................................. 657
Jan. 31 Payroll Tax Expense ........................................ 6,120

($80,000 X 7.65%) .................................. 6,120
Dec. 31 Warranty Expense ......................................... 4,500

Warranty Liability .................................. 4,500
[(1,000 X 5%) X €90]
(a) Lawsuit Loss ...................................................................

900,000
Lawsuit Liability ..................................................... 900,000
(b) No entry is necessary. The loss is not accrued because it is not

probable that a liability has been incurred at December 31, 2020.
(a) Working capital = $4,594,772 – $1,717,728 = $2,877,044 (thousand)

(b) Current ratio = $4,594,772 ÷ $1,717,728 = 2.67:1
SOLUTIONS FOR DO IT! EXERCISES
DO IT! 10.1
1. €70,000 X 6% X 5/12 = €1,750

2. €42,000/1.05 = €40,000; €40,000 X 5% = €2,000
3. €45,000 X 2/6 = €15,000
DO IT! 10.2
(a) Current liabilities

Notes payable ................................................... NT$ 40,000
Accounts payable............................................. 63,000
Unearned service revenue ............................... 70,000
Salaries and wages payable ............................ 32,000
Lawsuit liability ................................................ 25,000
Long-term debt due within one year ............... 90,000
Total current liabilities ............................... NT$320,000
(b) Working capital = Current assets – Current liabilities = NT$570,000

– NT$320,000 = NT$250,000
Current ratio: Current assets ÷ Current liabilities = NT$570,000 ÷
NT$320,000 = 1.78:1
SOLUTIONS TO EXERCISES
EXERCISE 10.1
July 1, 2020
Cash ...................................................................... 50,000
Notes Payable ................................................ 50,000
November 1, 2020
Cash ...................................................................... 60,000
Notes Payable ................................................ 60,000
December 31, 2020

Interest Expense
(NT$50,000 X 8% X 6/12) .................................. 2,000
Interest Payable ............................................. 2,000
Interest Expense
(NT$60,000 X 6% X 2/12) .................................. 600
Interest Payable ............................................. 600
February 1, 2021
Notes Payable....................................................... 60,000
Interest Payable.................................................... 600
Interest Expense .................................................. 300
Cash ............................................................... 60,900
April 1, 2021
Notes Payable....................................................... 50,000
Interest Payable.................................................... 2,000
Interest Expense .................................................. 1,000
Cash ............................................................... 53,000
EXERCISE 10.2
(a) June 1 Cash.......................................................... 90,000

Notes Payable ................................... 90,000
(b) June 30 Interest Expense ...................................... 600

Interest Payable
[($90,000 X 8%) X 1/12] ................ 600
(c) Dec. 1 Notes Payable .......................................... 90,000

Interest Payable
($90,000 X 8% X 6/12)........................... 3,600
Cash ................................................... 93,600
(d) $3,600
EXERCISE 10.3
POOLE SUPPLIERS
Apr. 10 Cash ............................................................... 31,500
Sales Revenue........................................ 30,000
Sales Taxes Payable .............................. 1,500
WATERMAN AQUATICS
15 Cash ............................................................... 25,680
Sales Revenue (₤25,680 ÷ 1.07)............. 24,000
Sales Taxes Payable
(₤25,680 – ₤24,000) ............................. 1,680
EXERCISE 10.4
(a) June 30
Sales Revenue ......................................................... 23,700
Sales Taxes Payable .................................... 23,700
Computation:
Sales plus sales tax (₤265,000
+ ₤153,700) .............................................₤418,700
Sales exclusive of tax (₤418,700
÷ 1.06) .....................................................(395,000)
Sales tax.....................................................₤ 23,700
(b) If the adjusting entry related to a VAT rather than sales tax, it would be
recorded as follows:
Sales Revenue .................................................................

23,700
Value Added Taxes Payable ................................... 23,700
EXERCISE 10.5
(a) Nov. 30 Cash .......................................................... 300,000

Unearned Subscription Revenue
(15,000 X €20) ................................ 300,000
(b) Dec. 31 Unearned Subscription Revenue ............ 25,000

(€300,000 X 1/12) ........................... 25,000
(c) Mar. 31 Unearned Subscription Revenue ............. 75,000

(€300,000 X 3/12) ........................... 75,000
EXERCISE 10.6
a. Salaries and Wages Expense.................................... 340,000

Income Taxes Payable ........................................ 80,000
Social Security Taxes Payable* ......................... 27,200
Union Dues Payable ........................................... 9,000
Salaries and Wages Payable .............................. 223,800
*[¥340,000 X 8% = ¥27,200]
b. Salaries and Wages Payable ..................................... 223,800

Cash 223,800
c. Payroll Tax Expense .................................................. 27,200

Social Security Taxes Payable ........................... 27,200
(See previous computation.)
EXERCISE 10.7
a. Salaries and Wages Expense ................................ 200,000

Income Taxes Payable .................................. 29,000
Social Security Taxes Payable ..................... 16,000*
Salaries and Wages Payable ........................ 155,000
*€200,000  8%
b. Payroll Tax Expense .............................................. 16,000

Social Security Taxes Payable ..................... 16,000
EXERCISE 10.8
July 10, 2020
Cash (200 X £4,000).........................................................
800,000
Sales Revenue........................................................ 800,000
During 2020
Warranty Expense ...........................................................17,000
Inventory................................................................. 17,000
December 31, 2020
Warranty Expense ...........................................................49,000

Warranty Liability (£66,000-£17,000) ..................... 49,000
EXERCISE 10-9
(a) Warranty Expense ..................................................... 15,000

Repair Parts ........................................................ 15,000
Warranty Expense (860 X NT$15) ............................. 12,900

Warranty Liability ............................................... 12,900
(b) Estimated warranties outstanding:
Month Estimate Units Defective Outstanding

November 900 600 300
December 960 400 560
Total 1,860 1,000 860
Estimated warranty liability—860 X NT$15 = NT$12,900.
(c) Warranty Liability (500 X NT$15) .............................. 7,500

Repair Parts ........................................................ 7,500
EXERCISE 10.10
During 2020
Cash ................................................................................
1,000,000
Sales Revenue ............................................................. 1,000,000
Warranty Expense ...........................................................

70,000
Repair Parts ..................................................................... 70,000
12/31/20
Warranty Expense ...........................................................

55,000
Warranty Liability ............................................................ 55,000
EXERCISE 10.11
(a) 1. Regular 40 X €14.00 = €560.00

Overtime 6 X €21.00 = 126.00
Gross earnings €686.00
2. Social Security taxes—€52.48 = (€686 X 7.65%).
3. Net pay €498.52 = ($686.00 – €52.48 – €135.00).
(b) Salaries and Wages Expense ................................... 686.00

Social Security Taxes Payable ......................... 52.48
Income Taxes Payable ...................................... 135.00
Salaries and Wages Payable ............................ 498.52
EXERCISE 10.12
(a) (1) Rp 900 [Rp10,000 see (2) below – Rp9,100].

(2) Rp10,000 (Social security taxes Rp765 ÷ 7.65%).
(3) Rp 400 (Rp10,000 X 4%).
(4) Rp 2,405 (Rp10,000 – Rp7,595).
(5) Rp10,000
(b) Feb. 28 Salaries and Wages Expense .................. 10,000

Social Security Taxes Payable ......... 765
Income Taxes Payable ...................... 1,140
Medical Insurance Premium Payable 400
Union Dues Payable ......................... 100
Salaries and Wages Payable ............ 7,595
28 Salaries and Wages Payable ................... 7,595

Cash ................................................... 7,595
EXERCISE 10.13
(a) Since the provision is probable and a reliable estimate of the amount can
be made, the liability should be recorded in the accounts. In addition,
the details should be disclosed in the notes to the financial
statements.
(b) If a provision probability is 50% or less, it need not be recorded, but must
be disclosed in the notes to the financial statements.
EXERCISE 10.14
(a) YOUNGER ONLINE COMPANY

Partial Statement of Financial Position
Current liabilities
Accounts payable.......................................................... $ 73,000
Mortgage payable .......................................................... 30,000
Unearned ticket revenue ............................................... 24,000
Warranty liability ........................................................... 18,000
Value-added taxes payable........................................... 10,000
Interest payable ............................................................. 8,000
Total current liabilities........................................... $163,000
(b) Younger Online Company’s working capital is $137,000 and its current
ratio is 1.84:1. Although a current ratio of 2:1 has been considered the
standard for a good credit rating, many companies operate successfully
with a current ratio below 2:1.
EXERCISE 10.15
(a) Current ratio

2019 $9,598 ÷ $5,839 = 1.64:1
2020 $10,795 ÷ $4,897 = 2.20:1
Working capital
2019 $9,598 – $5,839 = $3,759 million
2020 $10,795 – $4,897 = $5,898 million
(b) Current ratio

$10,595 ÷ $4,697 = 2.26:1
Working capital
$10,595 – $4,697 = $5,898 million
It would make its current ratio increase slightly, but its working capital
would remain the same.
SOLUTIONS TO PROBLEMS
PROBLEM 10.1
(a) Jan. 5 Cash ........................................................... 20,520

Sales Revenue (NT$20,520 ÷ 108%) . 19,000
Sales Taxes Payable
(NT$20,520 – NT$19,000)............... 1,520
12 Unearned Service Revenue ...................... 10,000

Service Revenue ............................... 10,000
14 Sales Taxes Payable ................................. 7,700

Cash ................................................... 7,700
20 Accounts Receivable ................................ 48,600

Sales Revenue ................................... 45,000
Sales Taxes Payable
(900 X NT$50 X 8%) ....................... 3,600
21 Cash ........................................................... 27,000

Notes Payable.................................... 27,000
25 Cash ........................................................... 12,420

Sales Revenue (NT$12,420 ÷ 108%) . 11,500
Sales Taxes Payable
(NT$12,420 – NT$11,500)............... 920
(b) (1) Jan. 31 Interest Expense ............................... 60

Interest Payable ......................... 60
(NT$27,000 X 8% X 1/12 =
(N NT$180; NT$180 X 1/3)
(2) Jan. 31 Warranty Expense

(NT$45,000 X 7%)........................... 3,150
Warranty Liability ...................... 3,150
PROBLEM 10.1 (Continued)
(c) Current liabilities

Notes payable ................................................................... NT$27,000
Accounts payable............................................................. 52,000
Unearned service revenue (NT$16,000 – NT$10,000)..... 6,000
Sales taxes payable (NT$1,520 + NT$3,600 + NT$920) .. 6,040
Warranty liability .............................................................. 3,150
Interest payable ................................................................ 60
Total current liabilities.............................................. NT$94,250
PROBLEM 10.2
(a) Jan. 2 Inventory .................................................. 30,000

Accounts Payable ............................ 30,000
Feb. 1 Accounts Payable ................................... 30,000

Notes Payable .................................. 30,000
Mar. 31 Interest Expense

(₩30,000 X 9% X 2/12) ......................... 450
Interest Payable ............................... 450
Apr. 1 Notes Payable.......................................... 30,000

Interest Payable ....................................... 450
Cash.................................................. 30,450
July 1 Equipment................................................ 71,000

Cash.................................................. 11,000
Notes Payable .................................. 60,000
Sept. 30 Interest Expense

(₩60,000 X 10% X 3/12) ....................... 1,500
Interest Payable ............................... 1,500
Oct. 1 Notes Payable.......................................... 60,000

Interest Payable ....................................... 1,500
Cash.................................................. 61,500
Dec. 1 Cash ......................................................... 24,000

Notes Payable .................................. 24,000
Dec. 31 Interest Expense

(₩24,000 X 8% X 1/12) ......................... 160
Interest Payable ............................... 160
PROBLEM 10.2 (Continued)
(b)
Notes Payable
4/1 30,000 2/1 30,000
10/1 60,000 7/1 60,000
12/1 24,000
12/31 Bal. 24,000
Interest Payable
4/1 450 3/31 450
10/1 1,500 9/30 1,500
12/31 160
12/31 Bal. 160
Interest Expense
3/31 450
9/30 1,500
12/31 160
12/31 Bal. 2,110
(c) Current liabilities

Notes payable ................................................. ₩24,000
Interest payable .............................................. 160 ₩24,160
(d) Total interest is ₩2,110.
PROBLEM 10.3
Salaries and Wages Expense ......................................... 25,800*

Income Taxes Payable (10% X $25,800)* .............. 2,580
Social Security Taxes Payable (8% X $25,800) .... 2,064
Union Dues Payable (2% X $25,800) ..................... 516
Cash ........................................................................ 20,640
*$4,200 + $3,500 + $2,700 + $7,400 + $8,000 = $25,800
Payroll Tax Expense ....................................................... 2,064

Social Security Taxes Payable (8% X $25,800) .... 2,064
PROBLEM 10.4
(a)
Earnings September Income Tax Social
Name to Aug. 31 Earnings Withholding Security
B. D. Williams £ 6,800 £ 800 £ 80 £ 64
D. Raye 6,500 700 70 56
K. Baker 7,600 1,100 110 88
F. Lopez 13,600 1,900 190 152
A. Daniels 105,000 13,000 1,300 1,040
B. Kingston 112,000 16,000 1,600 1,280
Total £251,500 £33,500 £3,350 £2,680
1. Salaries and Wages Expense .........................................

33,500
Income Taxes Payable ........................................... 3,350
2. Salaries and Wages Payable .......................................... 27,470

Cash ........................................................................ 27,470
(b) Payroll Tax Expense .......................................................2,680

PROBLEM 10.5
# Assets Liabilities Equity Net Income
1. I I NE NE
2. NE NE NE NE
3. NE I D D
4. I I I I
5. D I D D
6. NE I D D
7. NE I D D
8. I NE I I
9. D NE D D
10. NE I D D
PROBLEM 10.6
Current ratio = (¥95,000 + ¥75,000 + ¥40,000) ÷ ¥70,000

= ¥210,000 ÷ ¥70,000 = 3.0:1
Working capital = ¥210,000 − ¥70,000 = ¥140,000
ACR 10
(a) 1. Interest Payable .............................................. 250

Cash ......................................................... 250
2. Inventory ......................................................... 261,100

Accounts Payable ................................... 261,100
3. Cash ................................................................ 468,600

Sales Revenue ........................................ 440,000
Sales Taxes Payable ............................... 28,600
Cost of Goods Sold ........................................ 265,000

Inventory.................................................. 265,000
4. Accounts Payable........................................... 230,000

Cash ......................................................... 230,000
5. Sales Taxes Payable ...................................... 17,000

Cash ......................................................... 17,000
6. Other Operating Expenses ............................ 30,000

Cash ......................................................... 30,000
7. Salaries and Wages Expense ........................ 60,000

Social Security Taxes Payable ............... 4,590*
Income Taxes Payable ............................ 8,900
Salaries and Wages Payable .................. 46,510
*(7.65% X €60,000)
ACR 10 (Continued)
Adjusting Entries
8. Interest Expense ............................................. 250
Interest Payable....................................... 250
9. Insurance Expense (€6,000 ÷ 12) ................... 500

Prepaid Insurance ................................... 500
10. Depreciation Expense

(€38,000 – €2,000) ÷ (5 X 12) ............................. 600
Accumulated Depreciation—
Equipment............................................. 600
11. Payroll Tax Expense ....................................... 4,590

(7.65% X €60,000) ............................... 4,590
ACR 10 (Continued)
(a) and (b) Optional T accounts
Cash
Bal. 30,000 (1) 250 Accounts Payable
(3) 468,600 (4) 230,000 (4) 230,000 Bal. 13,750
(5) 17,000 (2) 261,100
(6) 30,000 Bal. 44,850
Bal. 221,350
Sales Taxes Payable
Inventory (5) 17,000 (3) 28,600
Bal. 30,750 (3) 265,000 Bal. 11,600
(2) 261,100
Bal. 26,850
Salaries and Wages Payable
(7) 46,510
Prepaid Insurance
Bal. 6,000 Adj. 500
Bal. 5,500
(7) 4,590
Equipment Adj. 4,590
Bal. 38,000 Bal. 9,180
Income Taxes Payable

Accumulated Depreciation— (7) 8,900
Equipment
Adj. 600
Notes Payable
Bal. 50,000
Interest Payable
(1) 250 Bal. 250
Adj. 250
Bal. 250
ACR 10 (Continued)
(a) and (b) (Continued)

Share Capital Depreciation Expense
Bal. 40,750 Adj. 600
Sales Revenue Insurance Expense

(3) 440,000 Adj. 500
Cost of Goods Sold Other Operating Expenses

(3) 265,000 (6) 30,000
Salaries and Wages Expense

(7) 60,000 Interest Expense
Adj. 250
Payroll Tax Expense

Adj. 4,590
ACR 10 (Continued)
(b) MORGAN FASHIONS

Adjusted Trial Balance
January 31, 2020
Account Debit Credit

Cash ............................................................ €221,350
Inventory .................................................... 26,850
Prepaid Insurance ...................................... 5,500
Equipment .................................................. 38,000
Accumulated Depreciation—
Equipment ............................................... € 600
Accounts Payable ...................................... 44,850
Interest Payable ......................................... 250
Sales Taxes Payable .................................. 11,600
Salaries and Wages Payable ..................... 46,510
Social Security Taxes Payable .................. 9,180
Income Taxes Payable ............................... 8,900
Notes Payable ............................................ 50,000
Share Capital−Ordinary ............................. 40,750
Sales Revenue ........................................... 440,000
Cost of Goods Sold ................................... 265,000
Salaries and Wages Expense .................... 60,000
Payroll Tax Expense .................................. 4,590
Depreciation Expense ............................... 600
Insurance Expense .................................... 500
Other Operating Expenses ........................ 30,000
Interest Expense ........................................ 250
€652,640 €652,640
ACR 10 (Continued)
(c) MORGAN FASHIONS

Income Statement
For the Month Ended January 31, 2020
Sales revenue ............................................. €440,000

Cost of goods sold..................................... 265,000
Gross profit ................................................ 175,000
Operating expenses
Salaries and wages expense ............. €60,000
Payroll tax expense ............................ 4,590
Depreciation expense ........................ 600
Insurance expense ............................. 500
Other operating expenses ................. 30,000
Total operating expenses .......................... 95,690
Income from operations ............................ 79,310
Other expenses and losses .......................
Interest expense ......................................... 250
Net income.................................................. €79,060
MORGAN FASHIONS
Retained Earnings Statement
For the Month Ended January 31, 2020
Retained earnings, 12/31/19 ...................... € -0-

Add: Net income ...................................... 79,060
Retained earnings, 1/31/20 ........................ €79,060
ACR 10 (Continued)
MORGAN FASHIONS
Statement of Financial Position
January 31, 2020
Property, Plant, and Equipment
Equipment ........................................... € 38,000
Accumulated depreciation— ............. 600
equipment .......................................
Total plant assets ......................... € 37,400
Current Assets
Prepaid insurance .............................. 5,500
Inventory ............................................. 26,850
Cash .................................................... 221,350
Total current assets ...................... 253,700
Total assets €291,100
Equity
Share capital €40,750
Retained earnings ...................................... 79,060 €119,810
Noncurrent liabilities
Notes payable ..................................... 50,000
Current Liabilities
Accounts payable ............................... € 44,850
Salaries and wages payable .............. 46,510
Sales taxes payable............................ 11,600
Social security taxes payable ............ 9,180
Income taxes payable ........................ 8,900
Interest payable .................................. 250
Total current liabilities .................. 121,290
Total liabilities ............................... 171,290
Total equity and liabilities ............ €291,100
CT 10.1 FINANCIAL REPORTING PROBLEM
(a) Total current liabilities at December 31, 2016, NT$318,239,273. TSMC’s

total current liabilities increased by NT$106,010,679 (NT$318,239,273 –
NT$212,228,594) over the prior year.
(b) The components of current liabilities for December 31, 2016 are:
Short term loans NT$57,958,200

Financial liabilities at fair value through profit or
loss 191,135
Accounts payable 26,062,351
Payables to related parties 1,262,174
Salary and bonus payable 13,681,817
Accrued profit sharing to employees and
compensation to directors and supervisors 22,894,006
Payable to contractors and equipment suppliers 63,154,514
Income tax payable 40,306,054
Provisions 18,037,789
Long-term liabilities – current portion 38,109,680
Accrued expenses and other current liabilities 36,581,553
(c) At December 31, 2016, TSMC’s non-current liabilities was

NT$178,164,903. There was a NT$44,490,322 decrease (NT$178,164,903
– NT$222,655,225) in non-current liabilities during the year.
The components of non-current liabilities for December 31, 2016 are:
Bonds payable NT$ 153,093,557

Long-term bank loans 21,780
Deferred income tax liabilities 141,183
Net defined benefit liability 8,551,408
Guarantee deposits 14,670,433
Others 1,686,542
CT 10.2 COMPARATIVE ANALYSIS PROBLEM
(a) Nestlé’s largest current liability was “Trade and other payables” at
CHF18,629 million. Its total current liabilities were CHF37,517 million.
Delfi’s largest current liability was “Borrowings” at US$44,197
thousand. Its total current liabilities were US$118,179 thousand.
Nestlé Delfi
(b) (in millions) (in thousands)
(1) Working capital CHF32,042 – CHF37,517 = US$202,671 – US$118,179

(CHF5,475) = US$84,492
CHF32,042 US$202,671
(1) Current ratio = 1.71:1
CHF37,517 = 0.85:1 US$118,179
(c) Based on this information, it appears that Nestlé is not liquid.

Additional analysis should be done to assess the reason for the
negative working capital and a current ratio less than 1.00.
CT 10.3 DECISION MAKING ACROSS THE ORGANIZATION
(a) BANISTER SERVICES
Number of Days Daily

Months Employees Worked Rate Cost
January–March 2 60 (20 X 3) $80 $ 9,600
April–May 3 50 (25 X 2) 80 12,000
June–October 2 90 (18 X 5) 80 14,400
November–December 3 46 (23 X 2) 80 11,040
Total Cost $47,040
PERMANENT EMPLOYEES
Salaries ($22,000 X 2) .............................................. $44,000
Additional payroll costs
Social Security taxes (7.65% X $44,000) ......... $3,366
Medical and dental insurance
(2 X $40 X 12) ................................................ 960 4,326
$48,326
Cunningham Processing would save $1,286 ($48,326 – $47,040), as shown,

by discharging the two employees and accepting the Banister Services
plan.
(b) Carol should consider the following additional factors:

(1) The effect on the morale of the continuing employees if two employees
are terminated.
(2) The anticipated efficiency of Banister Services workers compared to
the efficiency of the two employees who would be terminated.
(3) The effect on management control and supervision of using Banister
Services personnel.
(4) The time that may be required to integrate the different Banister
Services personnel into the Cunningham Processing’s procedures.
CT 10.4 COMMUNICATION ACTIVITY
Dear Mr. Cheung:
In response to your request, I wish to explain the types of taxes that are
involved in determining the payroll and in recording and paying employer
payroll taxes.
The taxes that are involved in determining the payroll are as follows:
1. Social Security taxes. These taxes were enacted by the government to

provide workers with retirement income, employment disability, and
medical benefits. These benefits are financed by a tax levied on
employees’ earnings. The tax rate and tax base are set by the
government and both change intermittently. Social Security taxes are
withheld by the employer and then remitted to the government. These
taxes are not an expense to the employer.
2. Income taxes. Employers are required to withhold income taxes from

employees each pay period. The amount depends on the employee’s
gross earnings, the number of allowances claimed by the employee,
and the length of the pay period. The amounts withheld are remitted by
the employer to the government. These taxes are not an expense to the
employer.
The payroll tax levied on employers that is recognized as payroll tax

expense by the employer is Social Security taxes. The employer must match
each employee’s Social Security contribution. The employer’s tax is subject
to the same rate and tax base applicable to the employee.
Very truly yours,
CT 10.5 ETHICS CASE
(a) The stakeholders in this situation are:
• Joko Saputra, owner and manager.

• Sixteen part-time employees of Joko’s.
• Acha Uwais, public accountant.
(b) Not withholding income taxes from employees’ payroll is both illegal
and unethical. Also, not paying Social Security taxes is illegal and
unethical.
(c) Acha Uwais, as Joko’s public accountant, should not be an accomplice to

improper payroll deductions and accounting. Acha should constantly
remind Joko of the consequences of his illegal payroll payments and
the unrecorded payments. She should advise Joko that not only is the
government deprived of its proper tax revenues, but employees are
deprived of social security credits.
(d) An important internal control principle is to make no payments from

cash receipts. All cash receipts should be deposited daily intact in the
bank and all disbursements should be made by properly authorized
and signed checks.
GAAP EXERCISES
GAAP 10.1
Under GAAP, some contingent liabilities are recorded in the financial
statements, others are disclosed, and in some cases no disclosure is
required. Obligations related to warranties are considered a contigent
liability.
GAAP 10.2
The similarities between GAAP and IFRS include: (1) the basic definition of
a liability, (2) the accounting for notes payable, unearned revenue, and
payroll taxes, and (3) criteria for classification as current.
Differences between GAAP and IFRS include: (1) IFRS showing long-term
liabilities before current liabilities, and (2) IFRS uses the term contingent
liability to refer only to possible obligations that are not recognized in the
financial statements but may be disclosed.
GAAP 10.3 GAAP FINANCIAL STATEMENT ANALYSIS
(a) Total current liabilities at September 24, 2016, $79,006 million. Apple’s
total current liabilities decreased by $1,604 ($79,006 – $80,610) million
from the prior year.
(b) In Note 10 under the subheading “Commitments and Contingencies,”

Apple states: “We recognize liabilities for contingencies and com-
mitments when a loss is probable and estimable.”
(c) The components of current liabilities are:
Accounts payable ............................................................ $37,294

Accrued expenses ........................................................... 22,027
Deferred revenue ............................................................. 8,080
Commercial Paper ........................................................... 8,105
Current portion of long-term debt .................................. 3,500
Total current liabilities ............................................... $79,006

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Financial Accounting with International

Financial Reporting Standards 4th

ASSIGNMENT CLASSIFICATION TABLE

1. Explain how to account for 1, 2, 3, 4, 1, 2, 3, 4, 5, 6, 1 1, 2, 3, 4, 5, 1, 2, 3, 4, 5

2. Discuss how current liabilities 5, 6, 10, 11 12, 13, 14 2 8, 9, 10, 13, 1, 5, 6

Problem Difficulty Time

1 Prepare current liability entries, adjusting entries, Moderate 30–40

3 Record payroll expense. Moderate 20–30

4 Record payroll expense. Simple 20–30

5 Determine financial statement impact of current liabilities. Moderate 15–20

6 Compute current ratio and working capital. Simple 5–8

Number LO BT Difficulty Time (min.)

Number LO BT Difficulty Time (min.)

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

4. (a) The entry when the tickets are sold is:

(b) The entry after each game is:

6. A provision is a liability of uncertain timing or amount. An example of a provision is warranties

BRIEF EXERCISE 10.1

(b) $30,000 of the mortgage payable is a current maturity of long-term debt.

(d) Accounts payable is a current liability because it will be paid out of

BRIEF EXERCISE 10.2

July 1 Cash ................................................................. 60,000

Dec. 31 Interest Expense ............................................. 3,000

BRIEF EXERCISE 10.3

Sales tax payable

Mar. 16 Cash ................................................................. 16,380

(a) Accounts Receivable ......................................................31,800

(b) Cash .................................................................................20,670

BRIEF EXERCISE 10.5

Salaries and Wages Expense ......................................... 24,000

BRIEF EXERCISE 10.6

8/1/20 Cash .................................................................................

12/31/20 Unearned Subscription Revenue ...................................

BRIEF EXERCISE 10.7

Cash ................................................................................ 840,000

Unearned Ticket Revenue.............................................. 70,000

December 31, 2020

February 15, 2021

BRIEF EXERCISE 10.9

Gross earnings .............................................................. €800

BRIEF EXERCISE 10.10

a. Jan. 15 Salaries and Wages Expense .................. 800

b. Salaries and Wages Payable ...................................... 657

BRIEF EXERCISE 10.11

Jan. 31 Payroll Tax Expense ........................................ 6,120

Dec. 31 Warranty Expense ......................................... 4,500

BRIEF EXERCISE 10.13

(a) Lawsuit Loss ...................................................................

(b) No entry is necessary. The loss is not accrued because it is not

BRIEF EXERCISE 10.14

(a) Working capital = $4,594,772 – $1,717,728 = $2,877,044 (thousand)

1. €70,000 X 6% X 5/12 = €1,750

(a) Current liabilities

(b) Working capital = Current assets – Current liabilities = NT$570,000

December 31, 2020

(a) June 1 Cash.......................................................... 90,000

(b) June 30 Interest Expense ...................................... 600

(c) Dec. 1 Notes Payable .......................................... 90,000

Sales Revenue .................................................................

(a) Nov. 30 Cash .......................................................... 300,000

(b) Dec. 31 Unearned Subscription Revenue ............ 25,000

(c) Mar. 31 Unearned Subscription Revenue ............. 75,000

a. Salaries and Wages Expense.................................... 340,000

b. Salaries and Wages Payable ..................................... 223,800