Unit 1 Exercise

Question 1.1 (Total: 10 marks)

Black Water Mining Company discovered a new iron ore deposit, the Reed Mine, and began production on January 1, 2020. The province requires mining companies to return the land to its natural state at the end of mining activity. Black Water Mining Company estimates that it will operate the mine for 25 years, at which time it will cost $ 25,000,000 for the land restoration project. Black Water Mining Company uses an 8% discount rate and follows ASPE.

Required

1. Record any obligation for land restoration at January 1, 2020.
2. Record any entry required related to this obligation at December 31, 2020.

Question 1.2 (Total: 18 marks)

On August 31, 2020, Red Leaf Corp. paid the Montreal Dominion Bank part of an outstanding $300,000 long-term 10% note payable obtained one year earlier (August 31, 2019), by paying $180,000 plus $18,000 interest. In order to do this, Red Leaf used $51,211 cash and signed a new one-year, zero-interest-bearing $160,000 note discounted at 9% by Montreal Dominion Bank (i.e., the bank issued a note at a discount designed to provide a 9% return over the one year period).

Required

1. Prepare the entry to record the refinancing.
2. Prepare the adjusting entry at December 31, 2020 in connection with the new zero interest bearing note.

Question 1.3 (Total: 28 marks)

For the following list of transactions, complete the table using ASPE and indicate (I) Increase, (D) Decrease, or (NE) No Effect.

		Assets	Liabilities	Shareholders' Equity	Net Income
Example	Purchased inventory for $80,000 on account.	I	I	NE	NE
1.	Issued an $80,000 note payable in payment of an account (see example above).
2.	Recorded accrued interest on the note from item 1 above.
3.	Borrowed $100,000 from the bank by signing a $104,000, six-month, non-interest bearing note.
4.	Recognized four months of interest expense on the note from item 3 above.
5.	Recorded cash sales of $81,900, which includes 5% provincial sales tax.
6.	Recorded salaries and wages expense of $35,000. The cash paid was $25,000; the difference was due to various amounts withheld.
7.	Recorded employer's payroll taxes.

Question 1.4 (Total: 20 marks)

Grumpy Cat Corp. includes one coupon in each bag of cat food it sells. In return for three coupons, customers receive a cat toy that the company purchases for $ 1.20 each. Grumpy Cat's experience indicates that 60% of the coupons will be redeemed. During 2020, 100,000 bags of cat food were sold, 12,000 toys were purchased, and 45,000 coupons were redeemed. In 2021, 120,000 bags of cat food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.

Required

Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the statement of financial position for 2020 and 2021.

Question 1.5 (Total: 24 marks)

The total payroll of Iron Island Inc. was $230,000. Income taxes withheld were $55,000. The EI rate is 1.66% for the employee and 1.4 times the employee premium for the employer. The CPP/QPP contributions are 4.95% for both the employee and employer.

Required

1. Prepare the journal entry for the salaries and wages paid.
2. Prepare the entry to record the employer payroll taxes.