Textbook Notes (367,754)
Canada (161,370)
Management (806)
MGT120H5 (67)
Chapter 8

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Catherine Seguin

Chapter 8 - current liabilities • Goods and services tax payable (GST). GST is a current liability and it's payable annually, quarterly, or monthly to the canada revenue agency (CRA) depending on the volume of business. • Sales tax payable (PST). This is levied at the point of sale to the final customer, unlike GST. It would apply to the asset when the company purchased at the cash register. It is a current liability, it is payable quarterly or monthly depending on the payer's volume of business. • Harmonized sales tax payable (HST). GST+PST. • Estimated warranty payable: when a product is sold with a warranty, the cost of the warranty should be recognized in the same period that the revenue from the sale of the product is recognized whatever the warranty life. Company must record warranty expense. The company won't know which products will be defective. The exact amount of warranty expense can't be known with certainty, so the business must estimate warranty expense and the related warranty liability. o Suppose a company purchases power-tools, made sales of $200,000 is subject to product warranties. If, in the past years, between 2% and 4% of products proved defective, the company would estimate that 3% of the products it sells this year will require repair or replacement. Therefore, the company would estimate a warranty expense of $6,000 (200,000*3%) o DR, warranty expense, 6000. CR, estimated warranty payable, 6000). o If they assume that the defective merchandise totals $4,000: DR, estimated warranty payable, 4000. CR, warranty expense, 4000. • Contingent liability - a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non- occurrence of one or more uncertain future events not wholly within the control of the entity or a present obligation that arises from past events but is not recognized in the financial statements because of insufficient reliability Convertible bonds - some corporate bonds may be converted into the issuing company's common shares. For investors, they combine the safety of assured receipt of interest and principal on the bonds with the opportunity for gains on the shares. The conversion feature is so attractive that investors usually accept a lower interest rate than they would for nonconvertible bonds. The lower cash interest payments benefit the issuer. The holder has the right to convert the bond into specified number of common shares. They will likely convert if the market price of the issuing com
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