Like all other businesses, TELUS adjusts accounts prior to year-end to measure assets, liabilities, revenues, and expenses for the financial statements. Examine TELUS's balance sheet in Appendix A , and pay particular attention to (a) Prepaid Expenses and (b) Accounts Payable and Accrued Liabilities.
Requirements
1. Why aren't Prepaid Expenses "true" expenses?
2. Open T-accounts for the Prepaid Expenses account and the Accounts Payable and Accrued Liabilities account. Insert TELUS's balances (in millions) at December 31, 2010.
3. Journalize the following for the year ended December 31, 2011. Key entries by letter, and show accounts in millions. Explanations are not required.
a. Paid the beginning balance of Accounts Payable and Accrued Liabilities.
b. Allocated Prepaid Expenses of $113 to Goods and Services Purchased.
c. Recorded Accounts Payable and Accrued Liabilities in the amount of $1,419. Assume this relates to Goods and Services Purchased.
d. Recorded a prepayment of $144 in services to Prepaid Expenses.
4. Post these entries and show that the balances in Prepaid Expenses and in Accounts Payable and Accrued Liabilities agree with the corresponding amounts reported in the December 31, 2011, balance sheet.
5. Compute the current ratios and debt ratios for TELUS at December 31, 2011, and at December 31, 2010. Did the ratio values improve, deteriorate, or hold steady during the year ended December 31, 2011? Do the ratio values indicate financial strength or weakness?