SOLVED

4) For each independent situation: 1. Langford Airport Parking Ltd. awards customers 250 reward miles per stay, in a well-known airline mileage program. Langford pays the airline $0.06 for each mile. Langford, which is not an agent for the airline, estimates that the fair value of the miles is the same as the price paid-$0.06. Parking revenues on May 24, 2017 were $52,000. Langford awarded 40,000 airline points to its customers. 2. On October 15, 2017, Hamilton Windows and Sash properly recorded the issue of a $12,000, 7% note due April 15, 2018. Hamilton is preparing its financial statements for the year ended December 31, 2018. Hamilton does not make adjusting entries during the year. Required: For each of the situations described above, prepare the required journal entry for the underlined entity. If a journal entry is not required, explain why. 5) P. A. Whitehorse owns a successful gardening company called Valley Gardening Ltd. (Valley). The company, which has a year end of December 31, 2015, has asked you, the company accountant, to prepare a report outlining how the following items should be reported in its financial statements. A. On January 1, 2015, Valley took advantage of a vendor-provided financing offer to acquire computer equipment. Valley signed a $30,000 note payable in full on January 1, 2017. Interest is payable annually at a rate of 4% per annum. Valley’s bank previously advised that it would charge an interest rate of 8% per annum for a loan on similar terms. B. A client of Valley was injured when she tripped on a piece of Valley’s equipment that was in her yard. The injured party is suing Valley for $500,000 for pain and suffering and loss of income. Valley’s solicitors advise that the company will almost certainly be found liable. Based on previous verdicts, counsel estimates that there is a 50% probability that the courts will award $400,000, and a 50% probability that the judgment will be $200,000. C. Valley has guaranteed $100,000 of the indebtedness of Healthyway Inc. (HWI), a related corporation. HWI has a long record of profitability and the probability of default is thought to be remote. D. Valley’s loan agreement with the bank includes a covenant that Valley will maintain its current ratio of no less than 1.30:1. If Valley fails to meet this or any of the other covenants at year-end, all loan facilities become immediately due and payable. It appears that Valley’s current ratio at year end will be slightly less than this. Required: Prepare the report.