Question

Exercise 13-27

St. Thomas Auto Repairs is preparing the financial statements for the year ended November 30, 2020. As the accountant, you are looking over the information regarding short-term liabilities, and determining the amounts that should be reported on the balance sheet. St. Thomas Auto Repairs reports under ASPE. The following information regarding new corporate initiatives has been brought to your attention.

1.		St. Thomas printed a coupon in the local newspaper in November 2020. The coupon permits customers to take 12% off the cost of any service between November 1, 2020 and January 30, 2021. The newspaper has a circulation of 10,500 customers. In November, 30 coupons were used by customers, resulting in sales reductions of $220. It is expected that 47 more coupons will be used before January 30, and the average sales transaction for St. Thomas is $75.
2.		In order to reduce the costs associated with production downtime due to sick days taken, St. Thomas developed a new plan in 2020. Employees are permitted up to 8 sick days per year with pay. If these days are not all used, then 50% of the unused time will be accumulated and can be used as paid vacation within the next year; otherwise, the rights will expire at the end of the next fiscal year. During 2020, 3 employees were eligible for the plan and each used 3 of their 8 days. The daily rate of pay for each employee is $220. These 3 individuals are long-term employees of the company who are unlikely to resign in the near future and who have been relatively healthy in the past.
3.		St. Thomas is considering starting a customer loyalty program. The program would involve tracking the purchases of each customer on a small card that they retain. Each time a customer reaches $240 in total purchases, they would get a $12 discount on the next purchase.

A.) For items that affect the 2020 financial statements, determine the amount of any liability that should be reported and the related expense.

	Coupon	Sick Time
Liability to be reported:	$	$
Expense to be reported:	$	$

Answer 1

Solution: