The Chief Executive Officer of Orion Enterprise has serious concerns about the company’s current or short term obligations. In a meeting with the CFO, the chief executive officer discussed his concerns, pointing out that the situation had negatively affected the company’s current ratio and acid test ratio. He sought the CFO’s advice as to whether some of the short term obligations could be reclassified as long term in order to alleviate the situation. They identified two short term obligations that could possibly be reclassified and the following actions were taken by the CFO. Note well: The company’s financial reporting date is March 31, 2019. Short Term Obligation – Wilson Finance Ltd. Orion’s short term obligation of $250,000 to Wilson Finance Ltd. becomes due on June 1, 2019. The parties reached an agreement that if Orion provides additional collateral, the obligation would be extended to June 1, 2021. The agreement was reached on May 1, 2019. The financial statements are authorized for issuance on July 1, 2019. Short Term Obligation – SDC Bank Orion’s short term obligation of $100,000 to SDC Bank becomes due on May 20, 2019. The bank agreed to extend the maturity date to May 20, 2020. This agreement was reached on March 10, 2019. The financial statements are authorized for issuance on July 1, 2019. Required Indicate how these transactions should be reported at March 31, 2019 on Orion’s Statement of Financial Position.
The Chief Executive Officer of Orion Enterprise has serious concerns about the
company’s current or short term obligations. In a meeting with the CFO, the chief executive officer discussed his concerns, pointing out that the situation had negatively affected the company’s
Note well: The company’s financial reporting date is March 31, 2019.
Short Term Obligation – Wilson Finance Ltd.
Orion’s short term obligation of $250,000 to Wilson Finance Ltd. becomes due on June 1, 2019. The parties reached an agreement that if Orion provides additional collateral, the obligation would be extended to June 1, 2021. The agreement was reached on May 1, 2019. The financial statements are authorized for issuance on July 1, 2019. Short Term Obligation – SDC Bank
Orion’s short term obligation of $100,000 to SDC Bank becomes due on
May 20, 2019. The bank agreed to extend the maturity date to May 20, 2020. This agreement was reached on March 10, 2019. The financial statements are authorized for issuance on July 1, 2019.
Required
Indicate how these transactions should be reported at March 31, 2019 on Orion’s
2. ‘Eradicate Now’ is an extermination company that specializes in pest control. On
September 19, 2020, the company was identified as being potentially responsible for causing serious damages to the environment by the Environmental Regulatory Agency.
The company’s management team met with it’s lawyers and concluded that it is probable that it will be held responsible for the damages caused. A reasonable estimate of the damages was $2,000,000.
‘Eradicate Now’ has an insurance policy of $10,000,000 with a deductible clause of $300,000.
Required
How should ‘Eradicate Now’ report this information on its financial statements for the year ended December 31, 2020?
3. You were hired as a junior accountant at Byron Manufacturing Company. The following
transactions relate to the company’s operations for the year 2020.
A. On February 8, the company purchased raw materials from Cetal Company for $80,000 with related terms 2/10, n/30. Byron paid for this purchase on February 15. Purchases and accounts payable are recorded at net amounts.
B. On March 1, the company purchased equipment for $500,000 from Machines and More Company. It paid $100,000 in cash and used a one-year, 7% note for the balance.
C. On June 30, the company borrowed $200,000, by signing a one-year zero-interestbearing $240,000 note at FSC Bank.
D. The company sells smart speakers at an average price of $15000. Each customer is offered a separate 5-year service type warranty contract of $1500. With this contract, the company would carry out periodic services and replace defective parts. During 2020, the company sold 40 smart speakers and 30 warranty contracts for cash. It estimates the 5-year warranty costs as $800 for parts and $500 for labour and accounts for warranties separately. Assume sales occurred on December 31, 2020, and straightline recognition of warranty revenues occurs.
Required
i. Prepare the
dates.
ii. Prepare the
iii. Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Byron Manufacturing Company's December 31, 2020 Statement of Financial Position.
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