Question

Given: DIOMEDIC Inc. produces armored cable devices under the Bellerephon trademark for US domestic customers. The company is an unlisted, middle-market business that operates out of a single facility in Glaucus, NY. You are a staff accountant at Ilium, LLP, assigned to the firm’s Outsourced Services division. H. Berlioz, your boss, has instructed you to review the Current Liabilities section of the DIOMEDIC Trial Balance and explain any corrections or changes that need to be made. The trial balance has been prepared by a bookkeeper who has a general knowledge of common entries, but she is not a trained accountant.

During the course of your review, you have learned the following:

1. a) On Nov 12, 2020 DIOMEDIC entered into a $46,800 contract with Starret Machinery, Inc. for equipment that Starret would produce to the customer’s specifications. The contract would obligate DIOMEDIC for the full contract amount upon acceptance and approval, which both parties anticipated would occur in Q1 2021. Fran Jaruzelski, the DIOMEDIC bookkeeper, had posted a debit entry to AP for the 10.0% deposit required by the contract.

2. b) On December 28, 2020 DIOMEDIC had placed an order with Homeric Supply (HS) for $1,700 of RM to be shipped f.o.b. HS on December 30, 2020.

3. c) All of DIOMEDIC’s sales are subject to an 8.0% sales tax, and the company collects the sales tax and remits this to the taxing authorities on a quarterly basis, within ten days after the end of the quarter. The Sep 31, 2020 balance of Sales Tax Payable was paid on October 8, 2020. As of December 31, 2020, DIOMEDIC had collected 93.5% of its 4Q Sales.

4. d) DIOMEDIC issued the zero-interest-bearing note to Retsof Advance Funding on Nov 2, 2020 receiving $28,400 cash and agreeing to repay the face amount of the $30,000 note on Feb 28, 2021.

5. e) On January 16, 2015 DIOMEDIC borrowed $250,000 from Bronze Bear Lending (BBL). The note had a ten-year maturity and required payments of 4.7% simple interest and a pro-rata reduction of principal on each anniversary. The note contained an acceleration clause, under which DIOMEDIC was required to maintain a Current Ratio of at least 1.4 at each year-end. Since the note had been issued with a ten- year life, Jaruzelski had classified all accounts associated with it as noncurrent.

6. f) DIOMEDIC employees work a standard number of hours each week, and the pay period runs on a two- week cycle from Monday to the following Friday, with settlement occurring on the next following Thursday. The last pay period in 2019 occurred on December 23. The total payroll expense is $11,800 per week, and employees are paid for all Federal holidays.

Jaruzelski has provided the following table of all non-zero Working Capital account balances from her TB:

A/P $12400 Inventory 31600

A/R 23462.57 Other current assets 18200.20

Accrued Expenses 7346.25 RAF Not/ P(net) 28400

Cash 10800.65

Required: Giving effect to the items noted above, prepare the Current Liabilities section of DIOMEDIC’s Balance Sheet. Explain each adjustment that you made, and set forth any questions that you were not able to resolve. Include with each such unresolved question an analysis of why you were not able to find an answer to the question.

Answer 1

Answerit Current liability of Biomedic in Balance swet as on sideco. 20208- Account Payable : Balance in Trial balance of $ 12000 Add :-(10% deposit :- Buogo Add:- Supplier order ;- $ 1780 C Tatal AP $18780 Accrued Expenses is $7346.25 bases outstanding $ Vigos RAF ( Retsof Advance f) $30,000 Total Current liability 67926.25

on Now 12, 2020 Diomedic entered into contract of $ 46,80 with starret Machun Inco would obligate Diomedic for fu amount on first Quarter of 2021. so In 2020 there will be no oblisation arisen, then 10% debit entry agaust Il Account Payable should be reversed. so, The amount of $4680 (60680x104) sch will be added to AP of 2020. On December 28, 2020. The order of $176 cef Rouw material weitli Homeric supply affect the current liability as well as increase in Ineentory by $ 1700, so in this case the amount of $ 1700 will have to be paid allich increases | the account Payable by $ 170N in 2020 sale Taxe payable us an component importantly considered when current liability calculated, but here there is no sales value gireen.

Diomedic issued zero interest be Note to Rets of advance fundins on Nov. 2. 2020 receiving 5. 28 000 cash and also obligate Diomedic to pay on Feb 28, 2021, which increase the current liabili A bep $ 30,07o. Note: The amount of Nate Payable which 1. is to be even wethrew one year taken as current liabil (e) The Borrowing from Bronze Bear lending ICBBL) of $ 2,50,000 is a non- cugeert | 00 long-term Gability because of its 10 year life. (F) on the year ended 2020. the wose outste -dinę for one week & 11800 is charge and taken as current liabit