50.1K

Verified Solution

Link Copied!

Kris Kringle Toys Inc. is gearing up for the holiday season. The following transactions and events have occurred:

Dec. 1	Borrowed $24,000 from the Icecap Bank for three years, at 3% interest. Interest is due on the first day of every month, starting on January 1 next year.
Dec. 5	Hired seven elves to package toys (they start work tomorrow) and nine reindeer to deliver them on Christmas Eve.
Dec. 24	Since they were hired, the seven elves have worked for 14 days each, 7 hours per day, and today Santa pays them $25 per hour.
Dec. 24	As the North Pole is in Canada, Santa has deducted the following in total from the elves' pay: EIT $2750; CPP $625; and EI $400. The appropriate employer portion is also accrued
Dec. 26	The deliveries were successful and the reindeer are paid with apples, oats, honey, and whatever milk and cookies Santa was able to take away.
Dec. 28	Santa's accountants, Scrooge, Grinch & Partners, tell Santa that he owes $9500 for last year's income taxes. He has not paid this amount yet. It will be paid in April.
Dec. 31	The first interest amount on the loan, due tomorrow, is accrued.
Jan. 1	The bank deducts the interest from Santa's account.
Jan. 15	Santa pays Revenue Canada the amount owed with respect to the elves' payroll.

1. How does Santa record the December 28 transaction? (1 mark)

A. increase both EIT Payable and Income Tax Expense

B. increase both Income Tax Payable and EIT Expense

C. increase both EIT Payable and EIT Expense

D. increase both Income Tax Payable and Income Tax Expense

E. increase Income Tax Expense and decrease Cash

F. increase EIT Expense and decrease Cash

2. How does Santa record the interest accrual on December 31? (1 mark)

A. increase both Bank Loan Payable and Bank Fees Expense

B. increase both Bank Loan Payable and Interest Expense

C. increase both Interest Payable and Interest Expense

D. increase both Accounts Payable and Interest Expense

E. increase both Accounts Payable and Bank Fees Expense

F. increase both Interest Payable and Bank Fees Expense

3. How does Santa record the interest payment on January 1? (1 mark)

A. decrease Interest Payable, Accounts Payable, and Cash

B. decrease Accounts Payable, Bank Loan Payable, and Cash

C. decrease both Bank Loan Payable and Cash

D. decrease Interest Payable, Bank Loan Payable, and Cash

E. decrease both Accounts Payable and Cash

F. decrease both Interest Payable and Cash

4. Which accounts will be affected, and how, by the January 15 payment? (4 marks)

A. Cash, CPP Payable, EI Payable, and EIT Payable all decrease

B. Cash, CPP Payable. EI Payable, and EIT Payable all decrease, and Wages Expense increases

C. Cash, CPP Payable, EI Payable, and Income Tax Payable all decrease

D. Cash, CPP Payable. EI Payable, and Income Tax Payable all decrease, and Employee Benefits Expense increases

E. Cash, CPP Payable, EI Payable, and EIT Payable all decrease, and Employee Benefits Expense increases

F. Cash and Employee Benefits Payable both decrease

G. Cash, CPP Payable, EI Payable, and EIT Payable all decrease, and Wages Expense and Employee Benefits Expense both increase

H. Cash, CPP Payable, EI Payable, and EIT Payable all decrease, and Wages Expense increases

Answer & Explanation Solved by verified expert

See Answer