Question

1The bank notes, issued August 1, 2021, are due on July 31, 2022, and pay interest at a rate of 12%, payable at maturity.

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2021, the end of its fiscal year, included the following account balances. Manufacturing's 2021 financial statements were issued on April 1, 2022. Accounts receivable Accounts payable 12% notes, payable to bank Mortgage note payable $ 100,000 48,400 628,000 1,230,000 Other information: a. The bank notes, issued August 1, 2021, are due on July 31, 2022, and pay interest at a rate of 12%, payable at maturity. b. The mortgage note is due on March 1, 2022. Interest at 11% has been paid up to December 31 (assume 11% is a realistic rate). Manufacturing intended at December 31, 2021, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $260,000 in cash on the principal balance and refinanced the remaining $970,000. c. Included in the accounts receivable balance at December 31, 2021, were two subsidiary accounts that had been overpaid and had credit balances totaling $21,650. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases. d. On November 1, 2021, Manufacturing rented a portion of its factory to a tenant for $37,200 per year, payable in advance. The payment for the 12 months ended October 31, 2022, was received as required and was credited to rent revenue. Required: 1. Prepare any necessary adjusting journal entries at December 31, 2021, pertaining to each item of other information (a-d). 2. Prepare the current and long-term liability sections of the December 31, 2021, balance sheet.

2 The mortgage note is due on March 1, 2022. Interest at 11% has been paid up to December 31 (assume 11% is a realistic rate). Manufacturing intended at December 31, 2021, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $260,000 in cash on the principal balance and refinanced the remaining $970,000.

3.Included in the accounts receivable balance at December 31, 2021, were two subsidiary accounts that had been overpaid and had credit balances totaling $21,650. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases.

4.

• On November 1, 2021, Manufacturing rented a portion of its factory to a tenant for $37,200 per year, payable in advance. The payment for the 12 months ended October 31, 2022, was received as required and was credited to rent revenue.
• 

Answer 1

Manufacturing Equitable Requirement 1 Journal Enteries Trans. Particulars Debit in $ Credit in $ Interest Expense a/c Dr. 31400 To Interest Payable 31400 (Interest accrued) 628000 x 12% x 5/12 b. No Journal Entry required Dr. 21650 Accounts Receivable a/c To Deferred Revenue (Deferred revenue recorded) 21650 d. Rent Revenue a/c Dr. 31000 To Deferred Revenue (Deferred rent revenue recorded) 37200 x 10/12 31000 Requirement 2 Balance sheet (Partial) As at 31.12.2021 Current Liabilities: Accounts Payable Current portion of Long Term Debt Accrued Interest Payable Advances from customers Deferred Revenue Bank Notes Payable 48400 260000 31400 21650 31000 628000 1020450 Total Current Liabilities Long Term Liabilities Mortgage Notes Payable 970000 1230000 - 260000 = 970000